S-4/A
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As filed with the Securities and Exchange Commission on December 4, 2020

Registration No. 333-250862

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Contango Oil & Gas Company

(Exact name of registrant as specified in its charter)

 

 

 

Texas   1311   95-4079863
(State or Other Jurisdiction of
Incorporation)
 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

717 Texas Avenue, Suite 2900

Houston, Texas 77002

(713) 236-7400

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

 

 

Charles L. McLawhorn, III

717 Texas Ave.

Suite 2900,

Houston, Texas 77002

(713) 236-7400

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

 

 

With copies to:

 

Tull R. Florey

Hillary H. Holmes

Gibson, Dunn & Crutcher LLP

811 Main Street, Suite 3000

Houston, Texas 77002

(346) 718-6600

 

Robert B. Robbins

Pillsbury Winthrop Shaw Pittman, LLP

11200 Seventeenth Street NW

Washington, DC 20036

(202) 663-8000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement is declared effective and upon completion of the merger described in the enclosed document.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the “Securities Act”), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this joint consent statement/information statement/prospectus is not complete and may be changed. Contango may not issue the securities offered by this joint consent statement/information statement/prospectus until the registration statement containing this joint consent statement/information statement/prospectus has been declared effective by the Securities and Exchange Commission. This joint consent statement/information statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or solicitation is not permitted.

 

SUBJECT TO COMPLETION, DATED DECEMBER 4, 2020

 

LOGO    LOGO

 

 

On behalf of the boards of directors of Contango Oil & Gas Company (“Contango”) and Mid-Con Energy GP, LLC (“Mid-Con GP”), as general partner of Mid-Con Energy Partners, LP (“Mid-Con”), we are pleased to enclose the accompanying joint consent statement/information statement/prospectus relating to the acquisition of Mid-Con by Contango.

On October 25, 2020, Contango, Michael Merger Sub LLC, a Delaware limited liability company and a wholly-owned, direct subsidiary of Contango (“Merger Sub”), Mid-Con and Mid-Con GP entered into an Agreement and Plan of Merger (as amended from time to time, the “merger agreement”) providing for the merger of Mid-Con with and into Merger Sub (the “merger”), with Merger Sub continuing as the surviving limited liability company in the merger and wholly-owned, direct subsidiary of Contango.

If the merger is completed, subject to certain exceptions, each Mid-Con unitholder will be entitled to receive 1.7500 shares of common stock, par value $0.04 per share, of Contango (the “Contango common stock”) for each common unit representing limited partner interests of Mid-Con (a “Mid-Con common unit”) owned by such Mid-Con unitholder.

Following the completion of the merger, it is anticipated that persons who were shareholders of Contango and unitholders Mid-Con immediately prior to the merger will own approximately 87% and 13% of the combined company, respectively.

Contango common stock is quoted on the NYSE American Stock Exchange (“NYSE American”) under the symbol “MCF,” and Mid-Con common units are quoted on Nasdaq Global Select Market (“Nasdaq”) under the symbol “MCEP.” The market prices of both Contango common stock and Mid-Con common units will fluctuate before the merger, and you should obtain current stock price and unit price quotations for the Contango common stock and Mid-Con common units.

The approval of the merger agreement and the transactions contemplated thereby, including the merger, requires the affirmative vote or consent of the holders of a majority of the outstanding Mid-Con common units. Under Voting and Support Agreements with Contango and Mid-Con (the “Mid-Con voting agreements”), Mid-Con unitholders beneficially owning 8,107,900 Mid-Con common units in the aggregate (the “Mid-Con voting agreement unitholders”) have irrevocably agreed to deliver a written consent approving the merger agreement and the transactions contemplated thereby, including the merger (the “Mid-Con written consent”), within two business days after the effectiveness of the registration statement of which this joint consent statement/information statement/prospectus forms a part. The delivery of the Mid-Con written consent by the Mid-Con voting agreement unitholders with respect to their Mid-Con common units will be sufficient to approve the merger agreement and the transactions contemplated thereby, including the merger.

The board of directors of Mid-Con GP (the “Mid-Con board”) has set November 25, 2020 as the record date for determining holders of Mid-Con common units entitled to execute and deliver written consents with respect to this joint consent statement/information statement/prospectus. If you are a record holder of outstanding Mid-Con common units as of that date, you may complete, date and sign the enclosed written consent and promptly return it to Mid-Con. See the section titled “Written Consents of Holders of Mid-Con Common Units” beginning on page 29 of this joint consent statement/information statement/prospectus.

The approval of the issuance of Contango common stock pursuant to the merger agreement (the “Contango share issuance”) by written consent requires the affirmative vote of a majority of the outstanding Contango common stock entitled to vote thereon. Holders of [            ] shares of Contango common stock, or [    ]% of the Contango common stock outstanding as of November 9, 2020, have delivered a written consent approving the Contango share issuance (the “Contango written consent”). As a result, no further action by any shareholder of Contango is required under applicable law, Contango’s certificate of formation or bylaws or otherwise to approve the Contango share issuance or any of the transactions contemplated by the merger agreement, and Contango will not solicit the vote of Contango shareholders for the approval of the Contango share issuance or such transactions and will not call a special meeting of the Contango shareholders for purposes of voting on such approval. In accordance with Rule 14c-2 under the Securities Exchange Act of 1934, the closing of the merger will become effective no sooner than 20 calendar days following the mailing of this joint consent statement/information statement/prospectus to Contango shareholders.

CONTANGO SHAREHOLDERS ARE NOT BEING ASKED FOR A CONSENT OR PROXY AND CONTANGO SHAREHOLDERS ARE REQUESTED NOT TO SEND CONTANGO A CONSENT OR PROXY.

This document is a prospectus relating to the Contango common stock to be issued to Mid-Con unitholders pursuant to the merger agreement, a consent statement for Mid-Con related to the written consent that may be delivered by Mid-Con unitholders and an information statement for Contango with respect to the Contango written consent. It contains answers to frequently asked questions and a summary of the important terms of the merger, the merger agreement and related transactions, followed by a more detailed discussion.

 

 

Please carefully read this entire document, including “Risk Factors” beginning on page 19, for a discussion of the risks relating to the merger and Contango following the merger.

Sincerely,

 

Wilkie S. Colyer, Jr

Chief Executive Officer and Director

Contango Oil & Gas Company

  

Sherry L. Morgan

Chief Executive Officer

Mid-Con Energy Partners, LP

Neither the Securities and Exchange Commission nor any state securities regulatory authority has approved or disapproved of the merger or the securities to be issued under this joint consent statement/information statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in this joint consent statement/information statement/prospectus. Any representation to the contrary is a criminal offense.

The date of the accompanying joint consent statement/information statement/prospectus is [                    ], 2020, and it is first being mailed or otherwise delivered to Contango shareholders and Mid-Con unitholders on or about [                    ], 2020.


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ADDITIONAL INFORMATION

Both Contango and Mid-Con file annual, quarterly and current reports, proxy statements, and other business and financial information with the Securities and Exchange Commission (the “SEC”) electronically, and the SEC maintains a website located at www.sec.gov containing this information. You can also obtain these documents, free of charge, from Contango at www.contango.com and from Mid-Con at www.mceplp.com, as applicable. The information contained on, or that may be accessed through, Contango’s and Mid-Con’s websites is not incorporated by reference into, and is not a part of, this joint consent statement/information statement/prospectus.

Contango has filed a registration statement on Form S-4 with respect to the shares of Contango common stock to be issued in the merger, of which this joint consent statement/information statement/prospectus forms a part. This joint consent statement/information statement/prospectus constitutes the prospectus of Contango filed as part of the registration statement. As permitted by SEC rules, this joint consent statement/information statement/prospectus does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may read and copy the registration statement, including any amendments, schedules and exhibits, at the SEC’s website mentioned above. Statements contained in this joint consent statement/information statement/prospectus as to the contents of any contract or other documents referred to in this joint consent statement/information statement/prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable agreement or other document filed as an exhibit to the registration statement.

This joint consent statement/information statement/prospectus incorporates important business and financial information about Contango from documents that are not attached to this joint consent statement/information statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this joint consent statement/information statement/prospectus, including copies of financial statements and management’s discussion and analysis, free of charge by requesting them in writing, by email or by telephone from Contango at the following address, telephone number or email address:

Contango Oil & Gas Company

Attn: Investor Relations

717 Texas Avenue, Suite 2900

Houston, Texas 77002

(713) 236-7400

investorrelations@contango.com

For a more detailed description of the information incorporated by reference into this joint consent statement/information statement/prospectus and how you may obtain it, please see “Where You Can Find More Information.”


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ABOUT THIS JOINT CONSENT STATEMENT/INFORMATION STATEMENT/PROSPECTUS

This joint consent statement/information statement/prospectus, which forms part of the registration statement on Form S-4 filed with the SEC by Contango, constitutes a prospectus of Contango under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Contango common stock issuable to Mid-Con unitholders pursuant to the merger agreement. This joint consent statement/information statement/prospectus also constitutes a consent statement for Mid-Con and an information statement for Contango under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, this joint consent statement/information statement/prospectus constitutes notice to Contango shareholders under Section 6.202(d) of the Texas Business Organizations Code (“TBOC”) of the actions taken by written consent by the shareholders executing the Contango written consent without a meeting of shareholders.

You should rely only on the information contained in or incorporated by reference into this joint consent statement/information statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint consent statement/information statement/prospectus. This joint consent statement/information statement/prospectus is dated [                    ], 2020, and you should assume that the information contained in this joint consent statement/information statement/prospectus is accurate only as of such date. You should also assume that the information incorporated by reference into this joint consent statement/information statement/prospectus is only accurate as of the date of such information. Neither the mailing of this joint consent statement/information statement/prospectus to Contango shareholders or Mid-Con unitholders nor the issuance by Contango of shares of Contango common stock pursuant to the merger agreement will create any implication to the contrary.

This joint consent statement/information statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a written consent in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this joint consent statement/information statement/prospectus regarding Contango has been provided by Contango, and information contained in this joint consent statement/information statement/prospectus regarding Mid-Con has been provided by Mid-Con.


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GLOSSARY

The following terms have the following meanings in this joint consent statement/information statement/prospectus:

 

   

“2020 reverse split” means the 1-for-20 reverse common unit split effected by Mid-Con on April 9, 2020.

 

   

“Contango” means Contango Oil & Gas Company, a Texas corporation;

 

   

“Contango board” means the Board of Directors of Contango;

 

   

“Contango common stock” means common stock, par value $0.04 per share, of Contango;

 

   

“Contango written consent” means the written consent of Contango shareholders approving the Contango share issuance;

 

   

“exchange ratio” means the ratio of 1.7500 shares of Contango common stock per outstanding Mid-Con common unit that will be issued to eligible Mid-Con unitholders pursuant to the merger agreement;

 

   

“GAAP” means accounting principles generally accepted in the United States of America;

 

   

“merger” means the merger of Mid-Con with and into Merger Sub pursuant to the merger agreement, with Merger Sub as the surviving limited liability company;

 

   

“merger agreement” means the Agreement and Plan of Merger, dated as of October 25, 2020, by and among Contango, Merger Sub, Mid-Con and Mid-Con GP;

 

   

“merger consideration” means right of eligible Mid-Con unitholders to receive 1.7500 shares of Contango common stock, with cash paid (without interest, rounded to the nearest cent) in lieu of the issuance of fractional shares;

 

   

“Merger Sub” means Michael Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of Contango;

 

   

“Mid-Con” means Mid-Con Energy Partners, LP, a Delaware limited partnership;

 

   

“Mid-Con board” means the Board of Directors of Mid-Con GP;

 

   

“Mid-Con common units” means common units representing limited partner interests in Mid-Con;

 

   

“Mid-Con conflicts committee” means the Conflicts Committee of the Mid-Con board;

 

   

“Mid-Con GP” means Mid-Con Energy GP, LLC, a Delaware limited liability company and the general partner, and wholly-owned subsidiary, of Mid-Con;

 

   

“Mid-Con GP interest” means the general partner interest in Mid-Con;

 

   

“Mid-Con LPA” means the Second Amended and Restated Agreement of Limited Partnership of Mid-Con; and

 

   

“Mid-Con written consent” means the written consent of Mid-Con unitholders approving the merger agreement and the transactions contemplated thereby, including the merger.

All currency amounts referenced in this joint consent statement/information statement/prospectus are in U.S. dollars.


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS

     iii  

SUMMARY

     1  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CONTANGO

     11  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MID-CON

     12  

SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL DATA

     13  

UNAUDITED COMPARATIVE PER SHARE AND PER UNIT DATA

     15  

MARKET PRICE INFORMATION

     16  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     17  

RISK FACTORS

     19  

Risks Relating to the Merger

     19  

Risks Relating to Contango Following the Merger

     26  

Other Risks Relating to Contango and Mid-Con

     28  

WRITTEN CONSENTS OF HOLDERS OF MID-CON COMMON UNITS

     29  

Mid-Con Common Units Entitled to Consent and Consent Required

     29  

Submission of Consents

     29  

Revocation of Consents

     29  

Expenses

     29  

THE MERGER

     30  

Background of the Merger

     30  

Recommendation of the Contango Board and Reasons for the Merger

     41  

Recommendation of the Mid-Con Board and Reasons for the Merger

     43  

Certain Contango and Mid-Con Unaudited Prospective Financial and Operating Information

     48  

Opinion of Contango’s Financial Advisor

     51  

Opinion of the Mid-Con Conflicts Committee’s Financial Advisor

     64  

Interests of Certain Mid-Con Directors and Executive Officers in the Merger

     79  

Board of Directors and Management of Contango Following Completion of the Merger

     80  

Material U.S. Federal Income Tax Consequences of the Merger

     80  

Accounting Treatment of the Merger

     84  

Regulatory Approvals

     84  

Exchange of Shares

     84  

Treatment of Indebtedness

     84  

Treatment of Mid-Con Phantom Units

     84  

Listing of Contango Common Stock; Delisting and Deregistration of Mid-Con Common Units

     85  

Appraisal Rights and Dissenters’ Rights

     85  

Litigation Related to the Merger

     85  

THE MERGER AGREEMENT

     86  

Explanatory Note Regarding the Merger Agreement

     86  

Terms of the Merger; Merger Consideration

     86  

Closing and Effective Time of the Merger

     87  

Treatment of Mid-Con Phantom Units

     87  

Exchange and Payment Procedures

     87  

Representations and Warranties

     88  

Definition of Material Adverse Effect

     89  

Conduct of Business

     90  

No Solicitation; Recommendations

     93  

Efforts to Close the Merger

     96  

Indemnification, Exculpation and Insurance

     96  

Other Covenants

     97  

Conditions Precedent to the Merger

     97  

 

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Termination of the Merger Agreement

     98  

Termination Fees and Expense Reimbursement

     100  

Amendments and Waivers

     101  

Specific Performance

     101  

Governing Law

     101  

Asset Purchase Agreement

     101  

AMENDMENT TO MID-CON ENERGY PARTNERS, LP LONG TERM INCENTIVE PROGRAM

     102  

INFORMATION ABOUT CONTANGO

     109  

INFORMATION ABOUT MID-CON

     110  

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS OF CONTANGO

     111  

COMPARISON OF SHAREHOLDER AND UNITHOLDER RIGHTS

     124  

CERTAIN BENEFICIAL OWNERS OF MID-CON COMMON UNITS

     134  

CERTAIN BENEFICIAL OWNERS OF CONTANGO COMMON STOCK

     136  

LEGAL MATTERS

     138  

EXPERTS

     138  

Contango Oil & Gas Company

     138  

Mid-Con Energy Partners, LP

     138  

WHERE YOU CAN FIND MORE INFORMATION

     139  

ANNEX A: AGREEMENT AND PLAN OF MERGER

     A-1  

ANNEX B:  OPINION OF INTREPID PARTNERS, LLC

     B-1  

ANNEX C:  OPINION OF PETRIE PARTNERS SECURITIES, LLC

     C-1  

ANNEX  D: ANNUAL REPORT OF MID-CON ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2019, RECAST TO GIVE EFFECT TO 2020 REVERSE SPLIT

     D-1  

ANNEX E:  QUARTERLY REPORT OF MID-CON ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

     E-1  

ANNEX F:  AMENDED AND RESTATED MID-CON ENERGY PARTNERS, LP LONG TERM INCENTIVE PROGRAM

     F-1  

 

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QUESTIONS AND ANSWERS

The following are some questions that you may have regarding the merger and the issuance of shares of Contango common stock to Mid-Con unitholders in connection with the merger. Contango and Mid-Con urge you to carefully read the entirety of this joint consent statement/information statement/prospectus, including the annexes hereto and the information incorporated herein, because the information in this section does not provide all the information that might be important to you with respect to the merger and the issuance of shares of Contango common stock in connection with the merger.

 

Q:

Why am I receiving this joint consent statement/information statement/prospectus?

 

A:

You are receiving this joint consent statement/information statement/prospectus because Contango and Mid-Con have entered into the merger agreement, pursuant to which, among other things, on the terms and subject to the conditions included in the merger agreement, Contango has agreed to acquire Mid-Con by means of a merger of Merger Sub, a wholly-owned subsidiary of Contango, with and into Mid-Con, with Merger Sub surviving the merger as a wholly-owned subsidiary of Contango. The merger agreement, which governs the terms of the merger, is attached to this joint consent statement/information statement/prospectus as Annex A.

In order to complete the merger, and in accordance with the rules of the NYSE American Stock Exchange (the “NYSE American”), Contango shareholders must approve the issuance of shares of Contango common stock to Mid-Con unitholders pursuant to the terms of the merger agreement (the “Contango share issuance”). Holders of [                ] shares of Contango common stock, or [    ]% of the Contango common stock outstanding as of November 9, 2020, have delivered a written consent approving the Contango share issuance (the “Contango written consent”). As a result, no further action by any shareholder of Contango is required under applicable law, Contango’s certificate of formation or bylaws or otherwise to approve the Contango share issuance or any of the transactions contemplated by the merger agreement, and Contango will not solicit the vote of Contango shareholders for the approval of the Contango share issuance or such transactions and will not call a special meeting of the Contango shareholders for purposes of voting on such approval.

CONTANGO SHAREHOLDERS ARE NOT BEING ASKED FOR A CONSENT OR PROXY AND CONTANGO SHAREHOLDERS ARE REQUESTED NOT TO SEND CONTANGO A CONSENT OR PROXY.

Also, in order to complete the merger, and in accordance with the Second Amended and Restated Agreement of Limited Partnership of Mid-Con (the “Mid-Con LPA”), Mid-Con unitholders must approve the merger agreement and the transactions completed thereby, including the merger (the “Mid-Con merger proposal”). Under Voting and Support Agreements with Contango and Mid-Con (the “Mid-Con voting agreements”), Mid-Con unitholders beneficially owning 8,107,900 Mid-Con common units in the aggregate (the “Mid-Con voting agreement unitholders”) have irrevocably agreed to deliver a written consent approving the Mid-Con merger proposal (the “Mid-Con written consent”) within two business days after the effectiveness of the registration statement of which this joint consent statement/information statement/prospectus forms a part. The delivery of the Mid-Con written consent by the Mid-Con voting agreement unitholders with respect to their Mid-Con common units will be sufficient to approve the Mid-Con merger proposal.

This joint consent statement/information statement/prospectus, which you should read carefully, contains important information about the merger agreement, the merger and the transactions completed thereby.

 

Q:

Who is entitled to give written consent with respect to this joint consent statement/information statement/prospectus?

 

A:

The board of directors of Mid-Con GP (the “Mid-Con board”) has set the close of business on November 25, 2020 as the record date (the “Mid-Con record date”) for determining holders of Mid-Con

 

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  common units entitled to execute and deliver written consents with respect to the Mid-Con merger proposal. If you are a record holder of outstanding Mid-Con common units as of that date, you may complete, date and sign the enclosed written consent and promptly return it to Mid-Con. For more information, please see the section entitled “Written Consents of Holders of Mid-Con Common Units—Submission of Consents.”

 

Q:

What will Mid-Con unitholders receive for their Mid-Con common units in the merger?

 

A:

Subject to certain exceptions, each Mid-Con common unit issued and outstanding immediately prior to the effective time of the merger (the “effective time”) that is eligible for conversion into Contango common stock in accordance with the terms of the merger agreement will be converted automatically into the right to receive 1.7500 shares of Contango common stock (the “exchange ratio”), with cash paid (without interest, rounded to the nearest cent) in lieu of the issuance of fractional shares, if any (the “merger consideration”).

In addition, Contango and Mid-Con will take, or cause to be taken, all actions necessary so that, at the effective time, each of Mid-Con’s outstanding phantom units will be treated as described in “The Merger—Treatment of Mid-Con Phantom Units.”

 

Q:

What is the Mid-Con Energy Partners, LP Long-Term Incentive Program and why am I being asked to approve an amended and restated version of it?

 

A:

On October 23, 2020, subject to approval of our unitholders, the Mid-Con board approved an amendment and restatement of the Mid-Con Energy Partners, LP Long-Term Incentive Program (the “LTIP”) to increase the number of common units issuable under the LTIP by 250,000 common units from 175,700 common units to 425,700 common units. The increase in the number of common units will allow Mid-Con to compensate members of the Mid-Con board with equity-settled phantom units in lieu of meeting fees otherwise payable to the Mid-Con directors. In the event that Mid-Con unitholder approval is not obtained, such equity-settled phantom units granted to Mid-Con directors will automatically terminate and cease to be outstanding. For additional discussion of the LTIP and the proposed amendment, see the section entitled “Amendment to Mid-Con Energy Partners, LP Long-Term Incentive Program.

 

Q:

If I am a Mid-Con unitholder, how will I receive the merger consideration to which I am entitled?

 

A:

As soon as reasonably practicable after the effective time, the exchange agent will mail a form of letter of transmittal to each holder of record of Mid-Con common units. This mailing will contain instructions on how to surrender certificates or book-entry units, as applicable, in exchange for the merger consideration and any fractional share consideration.

For additional information on the exchange of Mid-Con common units for the merger consideration, see the section entitled “The Merger Agreement—Exchange and Payment Procedures.”

 

Q:

What will holders of Mid-Con equity awards receive in the merger?

 

A:

Each Mid-Con phantom unit that is outstanding as of immediately prior to the effective time will fully vest immediately prior to the effective time. At the effective time, each such award will be cancelled and converted into the right to receive a number of shares of Contango common stock equal to the product of (i) the number of Mid-Con common units subject to such award as of immediately prior to the effective time and (ii) the exchange ratio, with cash paid (without interest, rounded to the nearest cent) in lieu of the issuance of fractional shares, if any.

For additional information regarding the treatment of Mid-Con phantom units, please see “The Merger Agreement—Treatment of Mid-Con Phantom Units.”

 

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Q:

Who will own Contango immediately following the merger?

 

A:

Contango and Mid-Con estimate that, if the merger is successfully completed, Contango shareholders as of immediately prior to the merger will hold approximately 87%, and Mid-Con unitholders as of immediately prior to the merger will hold approximately 13%, of the issued and outstanding shares of Contango common stock (without giving effect to any shares of Contango common stock held by Mid-Con unitholders prior to the merger). The exact equity stake of Mid-Con unitholders in Contango immediately following the effective time will depend on the number of shares of Contango common stock and Mid-Con common units issued and outstanding immediately prior to the effective time.

 

Q:

What will be the composition of the board of directors and management of Contango following the completion of the merger?

 

A:

Upon completion of the merger, the current directors and executive officers of Contango are expected to continue in their current positions, other than for changes that may be publicly announced by Contango in the future in the normal course.

 

Q:

Will the shares of Contango common stock received at the time of completion of the merger be traded on an exchange?

 

A:

Yes. It is a condition to the consummation of the merger that the shares of Contango common stock issuable to Mid-Con unitholders in connection with the merger be authorized for listing on the NYSE American, upon official notice of issuance. Mid-Con common units currently trade on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “MCEP.” When the merger is completed, the Mid-Con common units will cease to be traded on the Nasdaq and will be deregistered under the Exchange Act.

 

Q:

How will Contango shareholders be affected by the merger?

 

A:

Upon completion of the merger, each Contango shareholder will hold the same number of shares of Contango common stock that such shareholder held immediately prior to completion of the merger. As a result of the merger, Contango shareholders will own shares in a larger company with more assets. However, because Contango will be issuing additional shares of Contango common stock to Mid-Con unitholders in exchange for their Mid-Con common units in connection with the merger, each outstanding share of Contango common stock issued and outstanding immediately prior to the merger will represent a smaller percentage of the aggregate number of shares of Contango common stock issued and outstanding after the merger.

 

Q:

What are the material U.S. federal income tax consequences of the merger to holders of Mid-Con common units?

 

A:

The receipt of Contango common stock in exchange for Mid-Con common units pursuant to the merger will be a taxable transaction to U.S. holders (as defined in “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) for U.S. federal income tax purposes. A U.S. holder will generally recognize capital gain or loss on the receipt of Contango common stock in exchange for Mid-Con common units. However, a portion of this gain or loss, which portion could be substantial, will be separately computed and taxed as ordinary income or loss to the extent attributable to assets giving rise to depreciation recapture, depletion recapture or other “unrealized receivables” or to “inventory items” owned by Mid-Con and its subsidiaries. Passive losses that were not deductible by a U.S. holder in prior taxable periods because they exceeded a U.S. holder’s share of Mid-Con’s income may become available to offset a portion of the gain recognized by such U.S. holder. Please read “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of certain material U.S. federal income tax consequences of the merger.

 

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Please see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more detailed discussion of the U.S. federal income tax consequences of the merger to U.S. holders of Mid-Con common units.

 

Q:

When do Contango and Mid-Con expect to complete the merger?

 

A:

Contango and Mid-Con currently expect to complete the merger in early 2021. In accordance with Rule 14c-2 under the Exchange Act, the closing of the merger will become effective no sooner than 20 calendar days following the mailing of this joint consent statement/information statement/prospectus to Contango shareholders. Neither Contango nor Mid-Con can predict the actual date on which the merger will be completed, nor can the parties ensure that the merger will be completed, because completion is subject to conditions beyond the control of either company. Please see “The Merger—Regulatory Approvals and The Merger Agreement—Conditions Precedent to the Merger.”

 

Q:

What happens if the merger is not completed?

 

A:

If the merger is not completed for any reason, Mid-Con unitholders will not receive any payment for the Mid-Con common units they own. Instead, Mid-Con will remain an independent public company, Mid-Con common units will continue to be listed and traded on the Nasdaq and registered under the Exchange Act, and Mid-Con will continue to file periodic reports with the SEC.

Under specified circumstances, Contango or Mid-Con may be required to reimburse the other party’s expenses or pay a termination fee upon or subsequent to termination of the merger agreement, as described in “The Merger Agreement—Termination Fees and Expense Reimbursement.”

 

Q:

What Contango shareholder approval is required to adopt the Contango share issuance?

 

A:

The approval of the Contango share issuance by written consent requires the affirmative vote of a majority of the outstanding Contango common stock entitled to vote thereon. Holders of [                ] shares of Contango common stock, or [    ]% of the Contango common stock outstanding as of November 9, 2020, have delivered the Contango written consent approving the Contango share issuance. As a result, no further action by any shareholder of Contango is required under applicable law, Contango’s certificate of formation or bylaws or otherwise to approve the Contango share issuance or any of the transactions contemplated by the merger agreement, and Contango will not solicit the vote of Contango shareholders for the approval of the Contango share issuance or such transactions and will not call a special meeting of the Contango shareholders for purposes of voting on such approval.

 

Q:

What Mid-Con unitholder approval is required to adopt the Mid-Con merger proposal and the amended and restated LTIP?

 

A:

The approval of the Mid-Con merger proposal and the amended and restated LTIP requires the affirmative vote or consent of the holders of a majority of the outstanding Mid-Con common units. Under the Mid-Con voting agreements, the Mid-Con voting agreement unitholders have irrevocably agreed to deliver the Mid-Con written consent approving the Mid-Con merger proposal within two business days after the effectiveness of the registration statement of which this joint consent statement/information statement/prospectus forms a part. The delivery of the Mid-Con written consent by the Mid-Con voting agreement unitholders with respect to their Mid-Con common units will be sufficient to approve the Mid-Con merger proposal. For more information, please see the section entitled “Written Consents of Holders of Mid-Con Common Units—Mid-Con Common Units Entitled to Consent and Consent Required.”

 

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Q:

How do I return my written consent?

 

A:

If you are a holder of Mid-Con common units at the close of business on the Mid-Con record date and, after careful reading and considering the information contained in this joint consent statement/information statement/prospectus, you wish to return your written consent, please complete, date and sign the enclosed written consent and promptly return it to Mid-Con by one of the means described in “Written Consents of Holders of Mid-Con Common Units—Submission of Consents.

Mid-Con will not be holding a unitholders’ meeting to consider the Mid-Con merger proposal or the amended and restated LTIP, and therefore you will be unable to vote in person by attending such meeting.

 

Q:

Can I change or revoke my written consent?

 

A:

Yes. If you are a holder of Mid-Con common units at the close of business on the Mid-Con record date, you may change or revoke your consent to the Mid-Con merger proposal or the amended and restated LTIP at any time before the consents of a sufficient number of Mid-Con common units to approve the Mid-Con merger proposal or the amended and restated LTIP have been delivered to the secretary of Mid-Con. If you wish to change or revoke your consent before that time, you may do so by sending in a new written consent with a later date by one of the means described in the section entitled “Written Consents of Holders of Mid-Con Common Units—Submission of Consents,” or delivering a notice of revocation to the secretary of Mid-Con.

 

Q:

If my Mid-Con common units are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee automatically submit a written consent for me?

 

A:

No. If your Mid-Con common units are held in “street name,” you must instruct your bank, broker or other nominee whether to submit a written consent on your behalf.

 

Q:

Are there any risks that I should consider as a Contango shareholder or Mid-Con unitholder?

 

A:

Yes. You should read and carefully consider the risks set forth in “Risk Factors.” You also should read and carefully consider the risk factors of Contango and Mid-Con contained in the documents that are included in or incorporated by reference into this joint consent statement/information statement/prospectus.

 

Q:

What happens if I sell or otherwise transfer my Mid-Con common units before the completion of the merger?

 

A:

Only Mid-Con unitholders as of immediately prior to the effective time will become entitled to receive the merger consideration. If you sell your Mid-Con common units prior to the completion of the merger, you will not be entitled to receive the merger consideration by virtue of the merger.

 

Q:

If I am a Contango shareholder and I oppose the Contango share issuance or if I am a Mid-Con unitholder and I oppose the Mid-Con merger proposal, am I entitled to appraisal rights?

 

A:

No. Under Texas law, Contango shareholders are not entitled to dissenters’ or appraisal rights in connection with the issuance of shares of Contango common stock as contemplated by the merger agreement. Under Delaware law, holders of Mid-Con common units are not entitled to appraisal rights or dissenters’ rights in connection with the merger.

 

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Q:

Whom should I contact if I have any questions?

 

A:

If you have any questions about the merger or the Mid-Con written consent, or if you need to obtain copies of this joint consent statement/information statement/prospectus or other documents incorporated by reference into this joint consent statement/information statement/prospectus, you may contact the appropriate contact listed below:

 

For Contango shareholders:

 

Contango Oil & Gas Company

Attn: Investor Relations

717 Texas Avenue, Suite 2900

Houston, Texas 77002

(713) 236-7400
investorrelations@contango.com

  

For Mid-Con unitholders:

 

Mid-Con Energy Partners, LP

Attn: Investor Relations

2431 East 61st Street, Suite 800

Tulsa, Oklahoma 74136

(918) 748-3361
MSA.OwnerRelations@contango.com

 

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SUMMARY

The following summary highlights selected information described in more detail elsewhere in this joint consent statement/information statement/prospectus and the documents incorporated by reference into this joint consent statement/information statement/prospectus and may not contain all the information that may be important to you. To understand the merger and the matters being voted on by Contango shareholders and Mid-Con unitholders more fully, and to obtain a more complete description of the legal terms of the merger agreement and the agreements related thereto, you should carefully read this entire document, including the annexes and the documents incorporated herein and to which Contango and Mid-Con refer you. Each item in this summary includes a page reference directing you to a more complete description of that topic. See “Where You Can Find More Information.”

The Parties

Contango Oil & Gas Company

Contango is an independent oil and natural gas company that explores for, develops and produces oil, natural gas liquids and gas within the shallow waters of the Gulf of Mexico and onshore Texas, Oklahoma, Louisiana and Wyoming. Contango is a Texas corporation, and its common stock has been listed and traded on the NYSE American under the ticker symbol “MCF.” Contango’s principal executive office is currently located at 717 Texas Avenue, Suite 2900, Houston, Texas 77002, and its telephone number is (713) 236-7400. Contango also maintains field offices in its various areas of operation. Subsequent to the closing of the merger, Contango’s principal executive office will be moved to Fort Worth, Texas.

Michael Merger Sub LLC

Merger Sub is a wholly-owned subsidiary of Contango and a Delaware limited liability company formed on October 16, 2020 for the purpose of effecting the merger. Under the merger agreement, Mid-Con will merge with and into Merger Sub, with Merger Sub continuing as the surviving limited liability company and a wholly-owned subsidiary of Contango. Merger Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement, including the preparation of applicable regulatory filings in connection with the merger.

Mid-Con Energy Partners, LP

Mid-Con is an independent oil and natural gas company focused on the acquisition, development, exploration and production of oil and natural gas properties in the Mid-Continent, Big Horn and Powder River Basins with a focus on enhanced oil recovery. The Mid-Continent, Big Horn and Powder River Basins are located in Oklahoma and Wyoming and are characterized by multiple fields and waterflood units that are in close proximity to one another, produce from geologically similar reservoirs. Mid-Con common units are traded on the Nasdaq under the symbol “MCEP.” The principal executive offices of Mid-Con are located at 2431 E. 61st Street, Suite 800, Tulsa, Oklahoma 74136 and its telephone number is (918) 748-3361. Mid-Con GP is the general partner of Mid-Con.

The Merger (See page 30)

Upon satisfaction or waiver of the conditions to closing in the merger agreement, at the effective time, Mid-Con will merge with and into Merger Sub, with Merger Sub surviving the merger as a limited liability company and wholly-owned direct subsidiary of Contango. At the effective time, by virtue of the merger, each eligible Mid-Con common unit (other than Mid-Con common units held in the treasury of Mid-Con or owned, directly or indirectly, by Mid-Con GP immediately prior to the effective time, which will automatically be



 

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cancelled for no consideration), will be converted into the right to receive 1.7500 shares of Contango common stock, with cash paid (without interest, rounded to the nearest cent) in lieu of the issuance of any fractional shares of Contango common stock, and the general partner interest in Mid-Con (the “Mid-Con GP interest”) will automatically be cancelled for no consideration. In addition, Mid-Con will take, or cause to be taken, all actions necessary so that at the effective time, each of Mid-Con’s phantom units will be treated as described in “The Merger—Treatment of Mid-Con Phantom Units.”

Required Approval of the Contango Share Issuance by the Contango Shareholders

The approval of the Contango share issuance by written consent requires the affirmative vote of a majority of the outstanding Contango common stock entitled to vote thereon. Holders of [                ] shares of Contango common stock, or [    ]% of the Contango common stock outstanding as of November 9, 2020, have delivered the Contango written consent approving the Contango share issuance. As a result, no further action by any shareholder of Contango is required under applicable law, Contango’s certificate of formation or bylaws or otherwise to approve the Contango share issuance or any of the transactions contemplated by the merger agreement, and Contango will not solicit the vote of Contango shareholders for the approval of the Contango share issuance or such transactions and will not call a special meeting of the Contango shareholders for purposes of voting on such approval.

Required Approval of the Mid-Con Merger Proposal by the Mid-Con Unitholders (See page 29)

The approval of the Mid-Con merger proposal requires the affirmative vote or consent of the holders of a majority of the outstanding Mid-Con common units. Under the Mid-Con voting agreements, the Mid-Con voting agreement unitholders have irrevocably agreed to deliver the Mid-Con written consent approving the Mid-Con merger proposal within two business days after the effectiveness of the registration statement of which this joint consent statement/information statement/prospectus forms a part. The delivery of the Mid-Con written consent by the Mid-Con voting agreement unitholders with respect to their Mid-Con common units will be sufficient to approve the Mid-Con merger proposal. For more information, please see the section entitled “Written Consents of Holders of Mid-Con Common Units—Mid-Con Common Units Entitled to Consent and Consent Required.”

Recommendation of the Contango Board and Reasons for the Merger (See page 41)

At a meeting duly called and held on October 25, 2020, the Contango board, by unanimous vote of the disinterested directors, (i) determined that the merger agreement and the transactions contemplated thereby are in the best interests of Contango and its shareholders, (ii) approved the merger agreement and the transactions contemplated hereby, and (iii) resolved to recommend approval of the Contango share issuance by Contango’s shareholders.

For additional information on the recommendation of the Contango board, please see “The Merger—Recommendation of the Contango Board and Reasons for the Merger.”

Recommendation of the Mid-Con Board and Reasons for the Merger (See page 43)

On October 25, 2020, the Conflicts Committee (the “Mid-Con conflicts committee”) of the board of directors of Mid-Con GP (the “Mid-Con board”), by unanimous vote, in good faith (i) determined that the merger agreement and the transactions contemplated thereby are in, or not opposed to, the best interests of Mid-Con and the Mid-Con unaffiliated public unitholders, (ii) approved the merger agreement and the transactions contemplated thereby, including the merger (the foregoing constituting “Special Approval” pursuant to the Mid-Con LPA), and (iii) recommended to the Mid-Con board the approval of the merger agreement and the transactions contemplated thereby, including the merger.



 

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Upon the receipt of the unanimous recommendation of the Mid-Con conflicts committee, on October 25, 2020, the Mid-Con board, by unanimous vote, (i) determined that the merger agreement and the transactions contemplated thereby are in, or not opposed to, the best interests of Mid-Con and the holders of Mid-Con common units, including the Mid-Con unaffiliated public unitholders, (ii) approved the merger agreement and the transactions contemplated thereby, including the merger, and (iii) directed that the merger agreement and the transactions contemplated thereby, including the merger, be submitted to a vote of the holders of Mid-Con common units by written consent and recommended approval of the merger agreement and the transactions contemplated thereby, including the merger, by the holders of Mid-Con common units.

For additional information on the recommendation of the Mid-Con board, please see “The Merger—Recommendation of the Mid-Con Board and Reasons for the Merger.”

Opinion of Contango’s Financial Advisor (See page 51 and Annex B)

Intrepid Partners, LLC (See page 51 and Annex B)

The Contango board engaged Intrepid Partners, LLC (“Intrepid”) to act as its financial advisor for purposes of the proposed merger. On October 25, 2020, Intrepid delivered to the Contango board the oral opinion, confirmed by the delivery of a written opinion dated as of the same date, that as of the date thereof, and based upon and subject to the assumptions, procedures, factors, qualifications, limitations and other matters set forth in Intrepid’s written opinion, the exchange ratio in the merger is fair from a financial point of view to Contango.

The full text of Intrepid’s written opinion, dated October 25, 2020, which sets forth, among other things, certain of the assumptions made, procedures followed, matters considered, qualifications and limitations with respect to the review undertaken by Intrepid, is attached as Annex B to this joint consent statement/information statement/prospectus and is incorporated by reference in its entirety.

Intrepid provided its opinion for the information and benefit of the Contango board (in its capacity as such) in connection with its evaluation of the merger. The opinion does not address Contango’s underlying business decision to enter into the merger or the relative merits of the merger as compared with any other strategic alternative that may be available to Contango. The opinion is not intended to be and does not constitute a recommendation to any shareholder of Contango (“Contango shareholder”) as to how such Contango shareholder should act or vote with respect to the merger or any other matter. In addition, the opinion is not rendered to or for the benefit of, and does not confer rights or remedies upon, any person other than the Contango board (including any equity holders, creditors or other constituencies of Contango). This summary is qualified in its entirety by reference to the full text of the opinion.

Intrepid’s opinion was necessarily based upon business, market, economic, regulatory and other conditions as they exist on, and were evaluated as of, October 25, 2020. Intrepid assumes no responsibility for updating, revising or reaffirming its opinion based on developments, circumstances or events occurring, or information made available to it, after October 25, 2020. Intrepid’s opinion did not express any opinion as to equity securities or debt securities of Contango or Mid-Con and the price, trading range or volume at which any securities will trade at any time.

For further information, please see “The Merger—Opinion of Contango’s Financial Advisor” beginning on page 51 of this joint consent statement/information statement/prospectus.

Opinion of the Mid-Con Conflicts Committee’s Financial Advisor (See page 64 and Annex C)

Petrie Partners Securities, LLC (See page 64 and Annex C)

Mid-Con engaged, and the Mid-Con conflicts committee requested, Petrie Partners, LLC (or its affiliate, Petrie Partners Securities, LLC, “Petrie Partners”) to act as the Mid-Con conflicts committee’s financial advisor



 

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for purposes of the proposed merger. On October 25, 2020, Petrie Partners delivered an opinion to the Mid-Con conflicts committee as to the fairness, from a financial point of view, of the merger consideration to be received by the Mid-Con unaffiliated public unitholders pursuant to the merger agreement.

The full text of Petrie Partners’ written opinion, which describes, among other things, the assumptions made, procedures followed, factors considered and qualifications and limitations on the review undertaken, is attached as Annex C to this joint consent statement/information statement/prospectus and is incorporated by reference in its entirety. The summary of Petrie Partners’ opinion set forth in this joint consent statement/information statement/prospectus is qualified in its entirety by reference to the full text of the opinion. Mid-Con unitholders are encouraged to read the Petrie Partners opinion carefully in its entirety. Petrie Partners delivered its opinion for the information and assistance of the Mid-Con conflicts committee in connection with its consideration of the proposed merger, and Petrie Partners’ opinion does not address any other aspect of the merger agreement and does not constitute a recommendation as to how any Contango shareholder or Mid-Con unitholder should vote with respect to the proposed merger or any other matter.

For further information, please see “The Merger—Opinion of the Mid-Con Conflicts Committee’s Financial Advisor” beginning on page 64 of this joint consent statement/information statement/prospectus.

Interests of Certain Mid-Con Directors and Executive Officers in the Merger (See page 79)

Mid-Con’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Mid-Con unitholders generally. The members of the Mid-Con conflicts committee and the Mid-Con board were aware of and considered these interests, among other matters, when they approved the merger agreement and recommended that Mid-Con common unitholders approve the merger. These interests are described in more detail in the section entitled “The Merger—Interests of Certain Mid-Con Directors and Executive Officers in the Merger.

Board of Directors and Management of Contango Following Completion of the Merger (See page 80)

Upon completion of the merger, the current directors and executive officers of Contango are expected to continue in their current positions, other than for changes that be publicly announced by Contango in the future in the normal course.

Appraisal Rights or Dissenters’ Rights (See page 85)

Contango shareholders and Mid-Con unitholders are not entitled to appraisal rights in connection with the merger. For additional information, see the section entitled “The Merger—Appraisal Rights and Dissenters’ Rights.

Material U.S. Federal Income Tax Consequences of the Merger (See page 80)

The receipt of Contango common stock in exchange for Mid-Con common units pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes to U.S. holders (as defined in “The Merger—Material U.S. Federal Income Tax Consequences”). A U.S. holder who receives Contango common stock in exchange for Mid-Con common units pursuant to the merger will recognize gain or loss in an amount equal to the difference between:

 

   

the sum of (i) the amount of any cash received, (ii) the fair market value of any Contango common stock received, and (iii) such U.S. holder’s share of Mid-Con’s nonrecourse liabilities immediately prior to the merger; and

 

   

such U.S. holder’s adjusted tax basis in the Mid-Con common unit exchanged therefor.



 

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Gain or loss recognized by a U.S. holder will generally be taxable as capital gain or loss. However, a portion of this gain or loss, which portion is likely to be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to assets giving rise to depreciation recapture, depletion recapture or other “unrealized receivables” or to “inventory items” owned by Mid-Con and its subsidiaries. Passive losses that were not deductible by a U.S. holder in prior taxable periods because they exceeded a U.S. holder’s share of Mid-Con’s income may become available to offset a portion of the gain recognized by such U.S. holder. The U.S. federal income tax consequences of the merger to a Mid-Con unitholder will depend on such unitholder’s own personal tax situation. Accordingly, we strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the merger to you.

Please see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more detailed discussion of the U.S. federal income tax consequences of the merger to U.S. holders of Mid-Con common units.

Accounting Treatment of the Merger (See page 84)

Contango prepares its financial statements in accordance with GAAP. The merger will be accounted for as a business combination, using the acquisition method of accounting with Contango being considered the acquirer of Mid-Con for accounting purposes. This means that Contango will record all assets acquired and liabilities assumed from Mid-Con at their acquisition date fair values at the effective date of the merger.

Regulatory Approvals (See page 84)

Securities and Exchange Commission

In connection with the Contango share issuance, Contango has filed a registration statement with the SEC under the Securities Act, of which this joint consent statement/information statement/prospectus forms a part, pursuant to which the issuance of shares of Contango common stock in the merger will be registered with the SEC.

NYSE American

In addition, the completion of the merger is subject to approval for listing of the shares of Contango common stock to be issued in the merger on the NYSE American, subject to official notice of issuance.

Treatment of Mid-Con Phantom Units (See page 84)

Each Mid-Con phantom unit that is outstanding as of immediately prior to the effective time will fully vest immediately prior to the effective time. At the effective time, each such award will be cancelled and converted into the right to receive a number of shares of Contango common stock equal to the product of (i) the number of Mid-Con common units subject to such award as of immediately prior to the effective time and (ii) the exchange ratio, with cash paid (without interest, rounded to the nearest cent) in lieu of the issuance of fractional shares, if any.

For additional information regarding the treatment of Mid-Con phantom units, please see “The Merger—Treatment of Mid-Con Phantom Units.”

Listing of Contango Common Stock; Delisting and Deregistration of Mid-Con Common Units (See page 85)

It is a condition to the consummation of the merger that the shares of Contango common stock issuable to Mid-Con unitholders in the merger be approved for listing on the NYSE American, subject to official notice of issuance.



 

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Mid-Con common units currently trade on the Nasdaq under the stock symbol “MCEP.” When the merger is completed, Mid-Con will cease to exist and the Mid-Con common units will cease to be traded on the Nasdaq and will be deregistered under the Exchange Act.

No Solicitation; Recommendations (See page 93)

Subject to certain exceptions, the merger agreement limits Contango’s and Mid-Con’s ability to solicit, knowingly encourage (including by way of providing information or taking any other action) or discuss or negotiate with any person with respect to an acquisition proposal (as defined herein). For a more detailed discussion on Contango and Mid-Con and the ability of their boards of directors to consider other proposals, please see “The Merger Agreement—No Solicitation; Recommendations.”

Conditions Precedent to the Merger (See page 97)

The obligations of the parties to consummate the merger are subject to the satisfaction at or prior to the effective time of the following mutual conditions:

 

   

approval of the Contango share issuance by the Contango shareholders ([which has been obtained]) and approval of the Mid-Con merger proposal by the Mid-Con unitholders shall have been obtained;

 

   

no temporary restraining order, preliminary or permanent injunction or other judgment, order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition shall be in effect, and no law shall have been enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that, in any such case, prohibits or makes illegal the consummation of the merger;

 

   

the shares of Contango common stock to be issued to Mid-Con unitholders as provided for in the merger agreement shall have been approved for listing on the NYSE American, subject to official notice of issuance; and

 

   

the registration statement on Form S-4, of which this joint consent statement/information statement/prospectus forms a part, shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Form S-4 shall have been issued and no proceedings for that purpose shall be been initiated or threatened.

The obligations of Contango and Merger Sub to effect the merger are also subject to the satisfaction, or waiver by Contango, at or prior to the effective time of the following additional conditions:

 

   

the accuracy of the representations and warranties of Mid-Con and Mid-Con GP set forth in the merger agreement, subject to the materiality standards set forth in the merger agreement, as of the date of the merger agreement and as of the closing date of the merger (except to the extent such representations and warranties speak as of a specified date, in which case such representations and warranties will be true and correct as of such date), and Contango’s receipt of an officer’s certificate from Mid-Con GP to that effect;

 

   

performance of, in all material respects, all obligations required to be performed under the merger agreement by Mid-Con and Mid-Con GP at or prior to the effective time, and Contango’s receipt of an officer’s certificate from Mid-Con GP to that effect; and

 

   

since the date of the merger agreement, there shall not have occurred any event, change, circumstance, occurrence, effect or state of facts that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Mid-Con, and Contango’s receipt of an officer’s certificate from Mid-Con GP to that effect.



 

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The obligations of Mid-Con and Mid-Con GP to effect the merger are also subject to the satisfaction, or waiver by Mid-Con, at or prior to the effective time of the following additional conditions:

 

   

the accuracy of the representations and warranties of Contango and Merger Sub set forth in the merger agreement, subject to the materiality standards set forth in the merger agreement, as of the date of the merger agreement and as of the closing date of the merger (except to the extent such representations and warranties speak as of a specified date, in which case such representations and warranties will be true and correct as of such date), and Mid-Con’s receipt of an officer’s certificate from Contango to that effect;

 

   

performance of, in all material respects, all obligations required to be performed under the merger agreement by Contango and Merger Sub at or prior to the effective time, and Mid Con’s receipt of an officer’s certificate from Contango to that effect; and

 

   

since the date of the merger agreement, there shall not have occurred any event, change, circumstance, occurrence, effect or state of facts that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Contango, and Mid-Con’s receipt of an officer’s certificate from Contango to that effect.

As further discussed under the section entitled “Risk Factors,” neither Contango nor Mid-Con can be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Termination of the Merger Agreement (See page 98)

Contango and Mid-Con may mutually agree in writing to terminate the merger agreement before consummating the merger, even after approval of the Contango share issuance by the Contango shareholders and the Mid-Con merger proposal by the Mid-Con unitholders have been obtained.

In addition, either Contango or Mid-Con may terminate the merger agreement if:

 

   

the merger has not been consummated on or before April 23, 2021 (the “outside date”); provided that the right to terminate the merger agreement as described in this bullet shall not be available to any party whose failure to fulfill in any material respect any of its obligations under the merger agreement has been the primary cause of, or the primary factor that resulted in, the failure of the merger to be consummated by the outside date;

 

   

any court of competent jurisdiction or other governmental entity shall have issued a judgment, order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise prohibiting any of the transactions contemplated by the merger agreement, and such judgment, order, injunction, rule, decree or other action shall have become final and nonappealable; provided, that the party seeking to terminate the merger agreement as described in this bullet shall have used its reasonable best efforts to contest, appeal and remove such judgment, order, injunction, rule, decree ruling or other action in accordance with the terms of the merger agreement; or

 

   

the other party has breached or failed to perform any of its covenants or agreements set forth in the merger agreement, or if any representation or warranty of the other party shall have become untrue, which breach or failure to perform or to be true, either individually or in the aggregate, if occurring or continuing at the effective time, would result in the failure of any condition to the merger and such breach cannot be or has not been cured by the earlier of the outside date and 30 days after the giving of written notice to the breaching party of such breach or failure (a “terminable breach”); provided, that the terminating party is not then in terminable breach of any of its representations, warranties, covenants or agreements contained in the merger agreement.



 

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In addition, the merger agreement may be terminated under the following circumstances:

 

   

by Contango, if (i) a Mid-Con adverse recommendation change shall have occurred, (ii) the Mid-Con board (or any committee thereof), within ten business days of a tender or exchange offer relating to securities of Mid-Con having been commenced, shall have failed to publicly recommend against such tender or exchange offer, (iii) the Mid-Con board (or any committee thereof) shall have failed to publicly reaffirm its recommendation of the merger agreement and the merger within ten business days after the date any Mid-Con acquisition proposal or any material modification thereto is first commenced, publicly announced, distributed or disseminated to Mid-Con’s unitholders upon a request to do so by Contango, (iv) Mid-Con shall have breached or failed to perform any of its obligations set forth in the “no solicitation” or joint consent statement/information statement/prospectus covenants (in each case, excluding any such breaches that do not adversely affect Contango or the transactions contemplated by the merger agreement in any material respect) or (v) Mid-Con or the Mid-Con board (or any committee thereof) shall have formally resolved or publicly authorized or proposed to take any of the foregoing actions;

 

   

by Mid-Con, if (i) a Contango adverse recommendation change shall have occurred, (ii) the Contango board (or any committee thereof), within ten business days of a tender or exchange offer relating to securities of Contango having been commenced, shall have failed to publicly recommend against such tender or exchange offer, (iii) the Contango board (or any committee thereof) shall have failed to publicly reaffirm its recommendation of the Contango share issuance within ten business days after the date any Contango acquisition proposal or any material modification thereto is first commenced, publicly announced, distributed or disseminated to Contango’s shareholders upon a request to do so by Mid-Con, (iv) Contango shall have breached or failed to perform any of its obligations set forth in the “no solicitation” or joint consent statement/information statement/prospectus covenants (in each case, excluding any such breaches that do not adversely affect Mid-Con or the transactions contemplated by the merger agreement in any material respect) or (v) Contango or the Contango board (or any committee thereof) shall have formally resolved or publicly authorized or proposed to take any of the foregoing actions.

Termination Fees and Expense Reimbursement (See page 100)

Termination Fees Payable by Contango

The merger agreement requires Contango to pay Mid-Con a termination fee of up to $1,500,000 (less the amount of any expense reimbursement fee previously paid to Mid-Con as described below under “Expenses Payable by Contango”) in the event that:

 

   

(i) a Contango acquisition proposal (whether or not conditional) or intention to make a Contango acquisition proposal (whether or not conditional) is publicly made directly to Contango’s shareholders or is otherwise publicly disclosed, (ii) the merger agreement is terminated by (A) Contango or Mid-Con due to a failure of the merger to close by the outside date or (B) Mid-Con as a result of a terminable breach by Contango and (iii) within 12 months after such termination, Contango enters into a written definitive agreement for a Contango acquisition proposal made by the person that proposed such pre-termination acquisition proposal (or an affiliate thereof) or recommends or submits such acquisition proposal to its shareholder for approval, or a transaction in respect of such acquisition proposal is consummated; provided that for purposes of this clause (iii), each reference to “20%” in the definition of “acquisition proposal” shall be deemed to be a reference to “50%”; or

 

   

the merger agreement is terminated by Mid-Con after the occurrence of a Contango adverse recommendation change or related events as described above.

In no event shall Contango be required to pay the termination fee on more than one occasion.



 

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Expenses Payable by Contango

If a termination fee is payable pursuant to either bullet above under “Termination Fees Payable by Contango,” Contango will be required to reimburse Mid-Con and its affiliates for all of their reasonable out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, financial advisors, experts and consultants of Mid-Con and its affiliates) incurred by Mid-Con or Mid-Con GP, or on their behalf, in connection with or related to the authorization, preparation, investigation, negotiation, execution and performance of merger agreement and the transactions contemplated thereby, up to a maximum amount of $1,500,000 (less any amounts previously reimbursed by Contango). In addition, Contango is required to reimburse Mid-Con for such fees and expenses incurred prior to execution of the merger agreement, up to a maximum amount of $250,000.

Termination Fees Payable by Mid-Con

The merger agreement requires Mid-Con to pay Contango a termination fee of $1,500,000 if:

 

   

(i) a Mid-Con acquisition proposal (whether or not conditional) or intention to make a Mid-Con acquisition proposal (whether or not conditional) is publicly made directly to Mid-Con’s unitholders or is otherwise publicly disclosed, (ii) the merger agreement is terminated by (A) Contango or Mid-Con due to a failure of the merger to close by the outside date or (B) Contango as a result of a terminable breach by Mid-Con and (iii) within 12 months after such termination, Mid-Con enters into a written definitive agreement for a Mid-Con acquisition proposal made by the person that proposed such pre-termination acquisition proposal (or an affiliate thereof) or recommends or submits such acquisition proposal to its unitholders for adoption, or a transaction in respect of such acquisition proposal is consummated; provided that for purposes of this clause (iii), each reference to “20% ” in the definition of “acquisition proposal” shall be deemed to be a reference to “50%”; or

 

   

the merger agreement is terminated by Contango after the occurrence of a Mid-Con adverse recommendation change or related events as described above.

In no event shall Mid-Con be required to pay the termination fee on more than one occasion.

Expenses Payable by Mid-Con

If a termination fee is payable pursuant to either bullet above under “Termination Fees Payable by Mid-Con,” Mid-Con will be required to reimburse Contango and its affiliates for (i) all of their reasonable out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, financial advisors, experts and consultants of Contango and its affiliates) incurred by Contango and Merger Sub, or on their behalf, in connection or related to the authorization, preparation, investigation, negotiation, execution and performance of merger agreement and the transactions contemplated thereby, up to a maximum amount of $1,500,000, and (ii) if the merger agreement is terminated by Contango as a result of a Mid-Con adverse recommendation change or related events or a terminable breach by Mid-Con, in each case as described above, all amounts previously reimbursed by Contango to Mid-Con.

Specific Performance (See page 101)

In addition to any other remedy that may be available to each party prior to the termination of the merger agreement, each of the parties will be entitled to an injunction, specific performance and other equitable relief to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement.



 

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Closing and Effective Time of the Merger (See page 87)

Unless the parties agree otherwise, the closing of the merger will take place on a date that is three business days after the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to closing (other than any such conditions that by their terms are to be satisfied at the closing, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions).

As soon as practicable on the closing date, a certificate of merger will be filed with the Secretary of State of the State of Delaware. The merger will become effective at such time on the closing date as the parties agree in writing and specify in the certificate of merger.

Contango and Mid-Con have targeted to complete the merger in early 2021, subject to the satisfaction or waiver of the conditions to the merger. In accordance with Rule 14c-2 under the Exchange Act, the closing of the merger will become effective no sooner than 20 calendar days following the mailing of this joint consent statement/information statement/prospectus to Contango shareholders.

Comparison of Rights of Contango Shareholders and Mid-Con Unitholders (See page 124)

Mid-Con unitholders receiving Contango common stock in the merger will have different rights once they become shareholders of Contango due to differences between the governing documents of Contango and Mid-Con and applicable law. These differences are described in more detail in “Comparison of Shareholder and Unitholder Rights.”

Risk Factors (See page 19)

You should carefully consider all of the information contained in or incorporated by reference into this joint consent statement/information statement/prospectus, including the specific risk factors under the heading “Risk Factors.”

Litigation Related to the Merger (See page 85)

Following the filing of the preliminary joint consent statement/information statement/prospectus on November 23, 2020, one complaint has been filed with respect to the merger as of December 4, 2020 in the United States District Court for the District of Delaware. The complaint is captioned as Stein v. Mid-Con Energy Partners, LP et al, No. 1:20-cv-01601-UNA (D. Del.) (the “unitholder action”). The unitholder action was filed by a purported Mid-Con unitholder and names Mid-Con and members of the Mid-Con board as defendants. The unitholder action generally alleges a purported failure to disclose material information related to the financial projections of Contango’s and Mid-Con’s management and the financial analyses of Mid-Con’s financial advisor. The unitholder action alleges that the defendants violated Section 14(a) of the Exchange Act and Rule 14a-9 by making inadequate or misleading disclosures and alleges that the individual Mid-Con board members are liable under Section 20(a) of the Exchange Act. The unitholder action seeks, among other things, to enjoin the consummation of the merger unless and until the defendants disclose the material information that was allegedly omitted from the preliminary joint consent statement/information statement/prospectus and to rescind the merger agreement (to the extent already implemented) or grant an award of rescissory damages. The unitholder action also seeks payment of attorneys’ and expert fees and expenses. The unitholder action is at a preliminary stage and the defendants have not yet answered or otherwise responded to the complaint. Contango and Mid-Con believe that the claims asserted in the unitholder action are meritless, but cannot currently reasonably predict the outcome of or reasonably estimate the possible loss, if any, or range of loss from this lawsuit.



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CONTANGO

The following table sets forth selected historical consolidated financial data that has been derived from Contango’s audited consolidated financial statements as of and for each of the five years in the period ended December 31, 2019, as well as from Contango’s unaudited consolidated financial statements as of and for the nine months ended September 30, 2020 and 2019, and the related notes thereto. This disclosure does not include the effects of the merger. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Contango or the combined company, and the following information should be read in conjunction with, and is qualified in its entirety by, Contango’s consolidated financial statements, the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Contango’s Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, each of which is incorporated by reference into this joint consent statement/information statement/prospectus. The selected statement of operations data for the years ended December 31, 2017, 2016 and 2015 and selected balance sheet data as of December 31, 2017, 2016 and 2015 have been derived from Contango’s audited consolidated financial statements for such years, which have not been included or incorporated by reference into this joint consent statement/information statement/prospectus. For more information, please see “Where You Can Find More Information.”

 

    Nine Months Ended
September 30,
    Years Ended
December 31,
 
    2020     2019     2019     2018     2017     2016     2015  
    (In thousands, except per share data)  

Income Statement Data

             

Operating revenues

  $ 83,763     $ 39,320     $ 76,512     $ 77,087     $ 78,545     $ 78,183     $ 116,505  

Loss from continuing operations

    (140,094     (21,417     (159,796     (121,568     (17,643     (58,029     (335,048

Net loss attributable to common shareholders

    (140,094     (21,417     (159,796     (121,568     (17,643     (58,029     (335,048

Net loss per share:

             

Basic

    (1.07     (0.59     (2.95     (4.69     (0.71     (2.71     (17.67

Diluted

    (1.07     (0.59     (2.95     (4.69     (0.71     (2.71     (17.67

Weighted average shares outstanding

             

Basic

    131,493       36,518       54,136       25,945       24,686       21,424       18,965  

Diluted

    131,493       36,518       54,136       25,945       24,686       21,424       18,965  

Cash dividends per common share

    —         —         —         —         —         —         —    

Capital expenditures

    22,209       27,309       42,737       58,947       66,613       24,929       77,820  

Balance Sheet Data

             

Current assets

    49,179       31,602       46,387       17,434       15,773       19,054       22,272  

Total assets

    192,819       281,647       353,826       257,132       381,453       376,514       416,756  

Current liabilities

    93,277       63,447       110,547       101,257       50,537       62,889       40,961  

Noncurrent liabilities (excluding long-term debt)

    51,627       15,519       54,471       15,486       20,936       22,866       22,506  

Long-term debt

    69,369       28,100       72,768       —         85,380       54,354       115,446  

Shareholders’ equity (deficit)

    (21,454     174,581       116,040       140,389       224,600       236,405       237,843  


 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MID-CON

The following table sets forth selected historical consolidated financial data that has been derived from Mid-Con’s audited consolidated financial statements as of and for each of the five years in the period ended December 31, 2019, as well as from Mid-Con’s unaudited consolidated financial statements as of and for the nine months ended September 30, 2020 and 2019, and the related notes thereto. This disclosure does not include the effects of the merger. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Mid-Con or the combined company, and the following information should be read in conjunction with, and is qualified in its entirety by, Mid-Con’s consolidated financial statements, the related notes thereto and “Managements Discussion and Analysis of Financial Condition and Results of Operations” contained in Mid-Con’s Annual Report on Form 10-K for the year ended December 31, 2019, recast to give effect to the 2020 reverse split, and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, attached as Annexes D and E, respectively, to this joint consent statement/information statement/prospectus. The selected statement of operations data for the years ended December 31, 2017, 2016 and 2015 and selected balance sheet data as of December 31, 2017, 2016 and 2015 (i) have been derived from Mid-Con’s audited consolidated financial statements for such years, which have not been included in this joint consent statement/information statement/prospectus and (ii) give effect to the 2020 reverse split.

 

    Nine Months Ended
September 30,
    Years Ended
December 31,
 
    2020     2019     2019     2018     2017     2016     2015  
    (In thousands, except per share data)  

Income Statement Data

             

Operating revenues

  $ 48,497     $ 45,695     $ 55,501     $ 72,788     $ 56,984     $ 43,896     $ 96,280  

Income (loss) from continuing operations

    (12,681     7,270       (599     (18,253     (27,333     (24,814     (95,495

Limited partners’ interest in net income (loss)

    (13,853     3,714       (5,235     (22,495     (30,072     (25,768     (94,349

Net income (loss) per unit:

             

Basic

    (1.97     2.42       (3.40     (14.83     (20.04     (17.27     (63.66

Diluted

    (1.97     1.41       (3.40     (14.83     (20.04     (17.27     (63.66

Weighted average limited partner units outstanding

             

Basic

    7,048       1,537       1,538       1,516       1,500       1,492       1,482  

Diluted

    7,048       2,657       1,538       1,516       1,500       1,492       1,482  

Cash dividends per limited partner unit

    —         —         —         —         —         —         —    

Capital expenditures

    6,100       12,659       17,199       29,860       15,118       26,110       13,894  

Balance Sheet Data

             

Current assets

    11,991       8,510       7,560       10,875       9,421       8,406       35,217  

Total assets

    186,870       205,043       202,769       221,704       219,363       276,286       327,086  

Current liabilities

    76,373       6,736       10,391       5,897       7,156       9,147       33,909  

Noncurrent liabilities (excluding long-term debt)

    32,292       31,101       30,722       26,048       10,985       13,919       12,679  

Long-term debt

    —         65,000       68,000       93,000       99,000       122,000       150,000  

Convertible preferred units

    —         37,422       37,793       36,350       20,534       19,570       —    

Partners’ equity

    78,205       64,784       55,863       60,409       81,688       111,650       130,498  


 

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SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

COMBINED FINANCIAL DATA

The following summary unaudited pro forma condensed consolidated combined statements of operations data for the nine months ended September 30, 2020 and year ended December 31, 2019 have been prepared to give effect to the proposed merger and related transactions, as well as the effects of Contango’s acquisition of certain assets and liabilities, including approximately 306,000 net acres located in the STACK, Anadarko and Cherokee operating districts in Oklahoma (the “White Star Properties”), which closed on October 30, 2019, together with the private placement of Contango’s Series B Contingent Convertible Preferred Stock and an increase in borrowings under Contango’s credit agreement to pay the purchase price therefor (collectively, the “White Star transactions”), as if they had been completed on January 1, 2019. The unaudited pro forma condensed consolidated combined balance sheet data at September 30, 2020 has been prepared to give effect to the merger and related transactions as if they were completed on September 30, 2020. The following summary unaudited pro forma condensed consolidated combined financial information should be read in conjunction with “Unaudited Pro Forma Condensed Consolidated Combined Financial Statements” and related notes included in this joint consent statement/information statement/prospectus.

The unaudited pro forma condensed consolidated combined financial statements have been prepared using the acquisition method of accounting for business combinations under GAAP, with Contango treated as the acquirer. Under the acquisition method of accounting, Contango will record all assets acquired and liabilities assumed from Mid-Con at their respective acquisition date fair values at the effective time. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measure. Additionally, the value of the consideration to be paid by Contango upon the consummation of the merger will be determined based on the closing price of Contango common stock on the closing date of the merger. The sources and amounts of merger transaction expenses may also differ from that assumed in the following pro forma adjustments. Accordingly, the pro forma adjustments are preliminary, have been made solely for the purpose of providing pro forma financial statements, and are subject to revision based on a final determination of fair values as of the date of acquisition. Differences between these preliminary estimates and the final acquisition accounting may have a material impact on the accompanying pro forma financial statements and the combined company’s future results of operations and financial position.

The unaudited pro forma condensed consolidated combined financial statements are provided for illustrative purposes only and are not intended to represent or be indicative of the results of operations or financial position of the combined company that would have been recorded had the merger been completed as of the dates presented and should not be taken as representative of future results of operations or financial position of the combined company. The unaudited pro forma condensed consolidated combined financial statements do not reflect the impacts of any potential operational efficiencies, asset dispositions, cost savings or economies of scale that the combined company may achieve with respect to the combined operations.

 

     Nine Months
Ended
September 30,
2020
     Year Ended
December 31,

2019
 
     (in thousands, except per
share data)
 

Pro Forma Statement of Operations Data:

     

Total revenues

   $ 113,198      $ 273,277  

Net loss

     (153,108      (270,188

Net loss per share of common stock

     

Basic

     (0.84      (2.35

Diluted

     (0.84      (2.35


 

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     September 30,
2020
 
     (in thousands)  

Pro Forma Balance Sheet Data:

  

Total assets

   $ 345,659  

Long-term debt

     102,456  

Total shareholders’ equity

     57,021  


 

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UNAUDITED COMPARATIVE PER SHARE AND PER UNIT DATA

The following tables present Contango’s and Mid-Con’s historical and pro forma per share and per unit data, respectively, for the year ended December 31, 2019 and the nine months ended September 30, 2020. The pro forma per share and per unit data for the year ended December 31, 2019 and for the nine months ended September 30, 2020 is (i) presented as if the merger had been completed on January 1, 2019 and (ii) recast, with respect to the per unit data for the year ended December 31, 2020, to give effect to the 2020 reverse split.

Historical per share data of Contango for the year ended December 31, 2019 and the nine months ended September 30, 2020 was derived from Contango’s historical financial statements for the respective periods. Historical per unit data of Mid-Con for the year ended December 31, 2019 and the nine months ended September 30, 2020 was derived from Mid-Con’s historical financial statements for the respective periods. This information should be read together with the historical consolidated financial statements and related notes of Mid-Con included elsewhere herein and of Contango filed with the SEC, and that are incorporated into this joint consent statement/information statement/prospectus by reference. Please see “Where You Can Find More Information.”

Unaudited summary pro forma combined per share and per unit data for the year ended December 31, 2019 and the nine months ended September 30, 2020 was derived and should be read in conjunction with the unaudited pro forma condensed consolidated combined financial data included in “Unaudited Pro Forma Condensed Consolidated Combined Financial Statements” and the related notes thereto included in this joint consent statement/information statement/prospectus. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed as of the beginning of the period.

 

     Nine Months Ended
September 30, 2020
     Year Ended
December 31, 2019
 

Contango Historical Data

     

Net loss per common share

     

Basic

   $ (1.07    $ (2.95

Diluted

     (1.07      (2.95

Cash dividends declared and paid per share

     —          —    

Book value per common share as of period end

     (0.16      0.90  

Mid-Con Historical Data

     

Net loss per limited partner unit

     

Basic

     (1.97      (3.40

Diluted

     (1.97      (3.40

Cash distributions declared and paid per unit

     —          —    

Book value per limited partner unit as of period end

     5.46        1.84  

Unaudited pro forma

     

Net loss per common share

     

Basic

     (0.84      (2.35

Diluted

     (0.84      (2.35

Cash dividends declared per share

     —          —    

Book value per common share as of period end

     0.31     

Equivalent basis unaudited pro forma (1)

     

Net loss per limited partner unit

     

Basic

     (1.47      (4.11

Diluted

     (1.47      (4.11

Cash dividends declared per unit

     —          —    

Book value per limited partner unit as of period end

     0.55     

 

(1)

Equivalent basis unaudited pro forma combined amounts have been calculated by multiplying the unaudited pro forma combined per share amounts by the 1.7500 exchange ratio so that the per share amounts are equated to the respective values for one unit of limited partner interest.



 

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MARKET PRICE INFORMATION

Contango’s common stock is listed on the NYSE American under the symbol “MCF.” Mid-Con common units are listed on the Nasdaq under the symbol “MCEP.”

The high and low trading prices for the Contango common stock as of October 23, 2020, the last trading day immediately before the public announcement of the merger, were $1.81 and $1.58, respectively. The high and low trading prices for the Mid-Con common units as of October 23, 2020, the last trading day immediately before the public announcement of the merger, were $2.12 and $2.07, respectively.

As of December 3, 2020, the last date before the date of this joint consent statement/information statement/prospectus for which it was practicable to obtain this information, there were 173,687,624 shares of Contango common stock outstanding and 14,311,522 Mid-Con common units outstanding.

Because the exchange ratio will not be adjusted for changes in the market price of either Contango common stock or Mid-Con common units, the market value of Contango common stock that Mid-Con unitholders will have the right to receive on the date the merger is completed may vary significantly from the market value of the Contango common stock that Mid-Con unitholders would receive if the merger were completed on the date of this joint consent statement/information statement/prospectus. Please see “Risk Factors—Risk Factors Relating to the Merger.”

The following table sets forth the closing sale price of Mid-Con common units as reported on the Nasdaq and the closing sale price per share of Contango common stock as reported on the NYSE American, in each case on October 23, 2020, the last trading day before the public announcement of the parties entering into the merger agreement, and on [                    ], 2020, the last practicable trading day prior to the mailing of this joint consent statement/information statement/prospectus. The table also shows the estimated implied value of the merger consideration proposed for each Mid-Con common unit as of the same two dates. The implied value was calculated by multiplying the NYSE American closing price of a share of Contango common stock on the relevant date by the exchange ratio of 1.7500 shares of Contango common stock for each Mid-Con common unit.

 

     Contango
Common Stock
Closing Price
     Mid-Con
Common Unit
Closing Price
     Exchange
Ratio
     Implied Per Share
Value of Merger
Consideration
 

October 23, 2020

   $ 1.71      $ 2.08        1.7500      $ 2.99  

[                     ], 2020

   $ [                $ [                  1.7500      $ [            

Contango shareholders and Mid-Con unitholders are encouraged to obtain current market quotations for Contango common stock and Mid-Con common units and to review carefully the other information contained in this joint consent statement/information statement/prospectus or incorporated by reference herein. No assurance can be given concerning the market price of Contango common stock before or after the effective time. Please see “Where You Can Find More Information” for the location of information incorporated by reference into this joint consent statement/information statement/prospectus.



 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint consent statement/information statement/prospectus, and the documents to which Contango and Mid-Con refer you within this joint consent statement/information statement/prospectus, as well as oral statements made or to be made by Contango and Mid-Con, include “forward-looking statements” within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the United States Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical fact, included in this joint consent statement/information statement/prospectus, including those that address activities, events, or developments that Contango or Mid-Con expects, believes, or anticipates will or may occur in the future, are forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the merger, the expected timetable for completing the merger, the results, effects, benefits and synergies of the merger, pro forma descriptions of the combined company and its operations, integration and transition plans, synergies, opportunities, and anticipated future performance and any other statements regarding Contango’s or Mid-Con’s future expectations, beliefs, plans, objectives, financial conditions, assumptions, or future events or performance that are not historical facts. Words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “create,” “intend,” “should,” “could,” “would,” “may,” “might,” “foresee,” “plan,” “will,” “guidance,” “outlook,” “future,” “assume,” “forecast,” “focus,” “target,” “continue,” or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking.

Contango and Mid-Con caution investors that any forward-looking statements are subject to known and unknown risks and uncertainties, many of which are outside Contango’s and Mid-Con’s control, and which may cause actual results and future trends to differ materially from those matters expressed in, or implied or projected by, such forward-looking statements, which speak only as of the date of this joint consent statement/information statement/prospectus. Investors are cautioned not to place undue reliance on these forward-looking statements. Risks and uncertainties that could cause actual results to differ from those described in forward-looking statements include the following:

 

   

the merger agreement may be terminated in accordance with its terms and the merger may not be completed;

 

   

the parties may not be able to satisfy the conditions to the completion of the merger in a timely manner or at all;

 

   

the merger may not be accretive, and may be dilutive, to Contango’s earnings per share, which may negatively affect the market price of Contango common stock;

 

   

Contango and Mid-Con may incur significant transaction and other costs in connection with the merger in excess of those anticipated by Contango or Mid-Con;

 

   

the combined company may fail to realize anticipated synergies or other benefits expected from the merger in the timeframe expected or at all;

 

   

the ultimate timing, outcome and results of integrating the operations of Contango and Mid-Con;

 

   

the effect of the merger and its announcement and/or completion on business or employee relationships;

 

   

the risk related to disruption of management time from ongoing business operations due to the merger;

 

   

the merger may disrupt current plans and operations that may harm Contango’s and Mid-Con’s respective businesses;

 

   

the risk that certain directors and executive officers of Mid-Con have interests in the merger that are different from, or in addition to, the interests they may have as Mid-Con unitholders;

 

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the effects of the business combination of Contango and Mid-Con, including the combined company’s future financial condition, results of operations, strategy, credit ratings and plans;

 

   

the risk that Contango’s and Mid-Con’s businesses may not be integrated successfully;

 

   

changes in capital markets and the ability of the combined company to finance operations in the manner expected;

 

   

regulatory approval of the transaction;

 

   

any litigation relating to the merger;

 

   

risks to Contango’s and Mid-Con’s operating results and businesses generally, including the volatility of oil and natural gas prices and the uncertainty of estimates of oil and natural gas reserves and the impact of a widespread outbreak of an illness, such as the COVID-19 pandemic, and the other risks, contingencies and uncertainties applicable to Mid-Con disclosed elsewhere herein and to Contango disclosed in Contango’s other filings with the SEC incorporated by reference herein; and

 

   

the uncertainty of the value of the merger consideration due to the fixed exchange ratio and potential fluctuation in the market price of Contango common stock.

The foregoing list of factors is not exhaustive. For further discussion of these and other risks, contingencies and uncertainties applicable to Contango and Mid-Con, please see “Risk Factors” in this joint consent statement/information statement/prospectus as well as Contango’s and Mid-Con’s other filings with the SEC included or incorporated herein by reference. Please see “Where You Can Find More Information” for more information about the SEC filings incorporated by reference into this joint consent statement/information statement/prospectus.

All subsequent written or oral forward-looking statements attributable to Contango, Mid-Con or any person acting on its or their behalf are expressly qualified in their entirety by the cautionary statements contained in this section. All forward-looking statements speak only as of the date they are made and are based on information available at that time. Neither Contango nor Mid-Con assumes any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

 

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RISK FACTORS

In addition to the other information included or incorporated by reference in this joint consent statement/information statement/prospectus, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements”, you should carefully consider the following risks. In addition, you should read and carefully consider the risks associated with each of Contango and Mid-Con and their respective businesses. These risks can be found in Contango’s Annual Report on Form 10-K for the year ended December 31, 2019 and subsequent Quarterly Reports on Form 10-Q, each of which is filed with the SEC and incorporated by reference into this joint consent statement/information statement/prospectus, and Mid-Con’s Annual Report on Form 10-K for the year ended December 31, 2019, recast to give effect to the 2020 reverse split, and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, attached as Annexes D and E, respectively, to this joint consent statement/information statement/prospectus. For further information regarding the documents incorporated into this joint consent statement/information statement/prospectus by reference, please see the section titled “Where You Can Find More Information.” Realization of any of the risks described below, any of the events described under “Cautionary Statement Regarding Forward-Looking Statements” or any of the risks or events described herein and in the documents incorporated by reference could have a material adverse effect on Contango’s, Mid-Con’s or the combined company’s businesses, financial condition, cash flows and results of operations.

Risks Relating to the Merger

Because the market price of Mid-Con common units will fluctuate, Mid-Con unitholders cannot be sure of the value of the shares of Contango common stock they will receive in connection with the merger. In addition, because the exchange ratio is fixed, the number of shares of Contango common stock to be received by Mid-Con unitholders in connection with the merger will not change between now and the time the merger is completed to reflect changes in the trading prices of Contango common stock or Mid-Con common units.

In connection with the merger, each eligible Mid-Con common unit (other than Mid-Con common units held in Mid-Con’s treasury or held by Mid-Con GP immediately prior to the effective time, which will be cancelled for no consideration) will be converted automatically into the right to receive 1.7500 shares of Contango common stock, with cash paid (without interest, rounded to the nearest cent) in lieu of the issuance of any fractional shares of Contango common stock. The exchange ratio is fixed, which means that it will not change between now and the closing date, regardless of whether the market price of either Contango common stock or Mid-Con common units changes. Therefore, the value of the merger consideration will depend on the market price of Contango common stock at the effective time. The market price of Contango common stock has fluctuated since the date of the announcement of the parties’ entry into the merger agreement and will continue to fluctuate from the date of this joint consent statement/information statement/prospectus to the date of the merger is completed and thereafter. The market price of Contango common stock, when received by Contango unitholders after the merger is completed, could be greater than, less than or the same as the market price of Contango common stock on the date of this joint consent statement/information statement/prospectus.

The market price for Contango common stock following the closing may be affected by factors different from those that historically have affected or currently affect Contango common stock and Mid-Con common units.

Upon completion of the merger, holders of Mid-Con common units will receive shares of Contango common stock. Contango’s financial position may differ from its financial position before the completion of the merger, and the results of operations of the combined company may be affected by some factors that are different from those currently affecting the results of operations of Contango and those currently affecting the results of operations of Mid-Con. Accordingly, the market price and performance of Contango common stock is likely to be different from the market price and performance of Mid-Con common units in the absence of the merger. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, Contango common stock, regardless of Contango’s actual operating performance. For a discussion of the

 

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businesses of Contango and Mid-Con and important factors to consider in connection with those businesses, see the documents attached hereto, incorporated by reference herein and referred to in “Where You Can Find More Information.”

Contango shareholders and Mid-Con unitholders, in each case as of immediately prior to the merger, will have reduced ownership in the combined company.

Based on the number of issued and outstanding Mid-Con common units as of November 30, 2020 and the number of outstanding Mid-Con phantom units currently estimated to be payable in shares of Contango common stock in connection with the merger, Contango anticipates issuing approximately 25.4 million shares of Contango common stock pursuant to the merger agreement. The actual number of shares of Contango common stock to be issued pursuant to the merger agreement will be determined at the completion of the merger based on the number of Mid-Con common units outstanding immediately prior to such time. The issuance of these new shares could have the effect of depressing the market price of Contango common stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to, Contango’s earnings per share could cause the price of Contango common stock to decline or increase at a reduced rate.

Immediately after the completion of the merger, it is expected that Contango shareholders as of immediately prior to the merger will own approximately 87%, and Mid-Con unitholders as of immediately prior to the merger will own approximately 13%, of the issued and outstanding shares of Contango common stock. As a result, Contango’s current shareholders and Mid-Con’s current unitholders will have less influence on the policies of the combined company than they currently have on the policies of Contango and Mid-Con, respectively.

The merger is subject to a number of conditions to the obligations of both Contango and Mid-Con to complete the merger, which, if not fulfilled, or not fulfilled in a timely manner, may delay completion of the merger or result in termination of the merger agreement.

The respective obligations of each of Contango and Mid-Con to effect the merger are subject to the satisfaction at or prior to the effective time of the following conditions:

 

   

the approval of the Mid-Con merger proposal by Mid-Con unitholders must have been obtained;

 

   

the shares of Contango common stock that will be issued in the merger must have been authorized for listing on the NYSE American, subject to official notice of issuance;

 

   

the registration statement on Form S-4, of which this joint consent statement/information statement/prospectus forms a part, will have become effective under the Securities Act, and no stop order suspending its effectiveness may be in effect or threatened;

 

   

the absence of any law, order or injunction of a court or governmental entity of competent jurisdiction prohibiting the consummation of the merger;

 

   

subject to certain exceptions and materiality standards provided in the merger agreement, the representations and warranties of the other party must be true and correct as of the date of the merger agreement and as of the closing date;

 

   

the other party must have performed or complied in all material respects with all of its obligations under the merger agreement; and

 

   

the absence of a material adverse effect with respect to the other party.

Many of the conditions to completion of the merger are not within either Contango’s or Mid-Con’s control, and neither company can predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to April 23, 2021 (which is the 180th day after the execution of the merger agreement), it is possible that the merger agreement may be terminated. Although Contango and Mid-Con have agreed in the

 

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merger agreement to use reasonable best efforts, subject to certain limitations, to complete the merger as promptly as practicable, these and other conditions to the completion of the merger may fail to be satisfied. In addition, satisfying the conditions to and completing the merger may take longer, and could cost more, than Contango and Mid-Con expect. Neither Contango nor Mid-Con can predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the merger for a significant period of time or prevent them from occurring. Any delay in completing the merger may adversely affect the cost savings and other benefits that Contango and Mid-Con expect to achieve if the merger and the integration of the companies’ respective businesses are completed within the expected timeframe.

The business relationships of Contango and Mid-Con may be subject to disruption due to uncertainty associated with the merger, which could have a material adverse effect on the results of operations, cash flows and financial position of Contango or Mid-Con pending and following the merger.

Parties with which Contango or Mid-Con do business may experience uncertainty associated with the merger, including with respect to current or future business relationships with Contango or Mid-Con following the merger. Contango’s and Mid-Con’s business relationships may be subject to disruption as customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may attempt to delay or defer entering into new business relationships, negotiate changes in existing business relationships or consider entering into business relationships with parties other than Contango or Mid-Con following the merger. These disruptions could have a material and adverse effect on the results of operations, cash flows and financial position of Contango or Mid-Con, regardless of whether the merger is completed, as well as a material and adverse effect on Contango’s ability to realize the expected cost savings and other benefits of the merger. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the merger or termination of the merger agreement.

The merger agreement subjects Contango and Mid-Con to restrictions on their respective business activities prior to the effective time.

The merger agreement subjects Contango and Mid-Con to restrictions on their respective business activities prior to the effective time. The merger agreement obligates each of Contango and Mid-Con to carry on its business in the ordinary course consistent with past practice and to use its reasonable best efforts to preserve intact its business organization, preserve its assets, rights and properties in good repair and condition, keep available the services of its current officers and consultants and preserve its goodwill and its relationships with customers, suppliers, contractors, licensors, licensees, distributors and others having business dealings with it. These restrictions could prevent Contango and Mid-Con from pursuing certain business opportunities that arise prior to the effective time and are outside the ordinary course of business. See “The Merger Agreement—Conduct of Business” for additional details.

The merger agreement limits Contango’s and Mid-Con’s respective ability to pursue alternatives to the merger, may discourage other companies from making a favorable alternative acquisition proposal and, in specified circumstances, could require Contango or Mid-Con to pay the other party a termination fee.

The merger agreement contains certain provisions that restrict each of Contango’s and Mid-Con’s ability to solicit, initiate, endorse, knowingly encourage or knowingly facilitate any inquiry, proposal or offer that constitutes, or would reasonably be expected to lead to, an acquisition proposal with respect to Contango or Mid-Con, as applicable, and Contango and Mid-Con have each agreed to certain terms and conditions relating to their ability to enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to a third party any information or data with respect to, or otherwise cooperate in any way with, any acquisition proposal. Further, even if the Mid-Con board changes, withdraws, modifies or qualifies its recommendation with respect to the Mid-Con merger proposal, unless the merger agreement has been terminated in accordance with its terms, Mid-Con will still be required to submit the Mid-Con merger proposal to a vote by

 

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written consent. In addition, Contango generally has an opportunity to offer to modify the terms of the merger agreement in response to any competing acquisition proposals or intervening events before the Mid-Con board may withdraw or qualify its recommendation. The merger agreement further provides that under specified circumstances, including after receipt of certain alternative acquisition proposals, Mid-Con may be required to pay Contango a cash termination fee equal to $1.5 million, together with an expense reimbursement up to $1.5 million, or Contango may be required to pay Mid-Con a cash termination fee equal to $1.5 million, together with an expense reimbursement up to $1.5 million (including up to $250,000 for expenses incurred prior to the execution date of the merger agreement), less any expenses previously reimbursed by Contango. See “The Merger Agreement—Termination Fees and Expense Reimbursement” for additional details.

These provisions could discourage a potential third-party acquirer or other strategic transaction partner that might have an interest in acquiring all or a significant portion of Mid-Con or Contango from considering or pursuing an alternative transaction with either party or proposing such a transaction, even if it were prepared, in Mid-Con’s case, to pay consideration with a higher per share value than the total value proposed to be paid or received in the merger. These provisions might also result in a potential third-party acquirer or other strategic transaction partner proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee or expense reimbursement fee that may become payable in certain circumstances.

The financial forecasts are based on various assumptions that may not be realized.

The financial estimates set forth in the forecasts included under the sections “The Merger—Certain Contango and Mid-Con Unaudited Prospective Financial and Operating Information” were based on assumptions of, and information available to, Contango’s management and Mid-Con’s management, as applicable, when prepared, and these estimates and assumptions are subject to uncertainties, many of which are beyond Contango’s and Mid-Con’s control and may not be realized. Many factors mentioned in this joint consent statement/information statement/prospectus, including the risks outlined in this “Risk Factors” section and the events or circumstances described under “Cautionary Statement Regarding Forward-Looking Statements,” will be important in determining the combined company’s future results. As a result of these contingencies, actual future results may vary materially from Contango’s and Mid-Con’s estimates. In view of these uncertainties, the inclusion of financial estimates in this joint consent statement/information statement/prospectus is not and should not be viewed as a representation that the forecasted results will necessarily reflect actual future results.

Contango’s and Mid-Con’s financial estimates were not prepared with a view toward public disclosure, and such financial estimates were not prepared with a view toward compliance with published guidelines of any regulatory or professional body. Further, any forward-looking statement speaks only as of the date on which it is made, and neither Contango nor Mid-Con undertakes any obligation, other than as required by applicable law, to update the financial estimates herein to reflect events or circumstances after the date those financial estimates were prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances.

The financial estimates of Contango and Mid-Con included in this joint consent statement/information statement/prospectus have been prepared by, and are the responsibility of, Contango and Mid-Con, as applicable. Moreover, neither Contango’s nor Mid-Con’s independent accountants, nor any other independent accountants, have compiled, examined or performed any procedures with respect to Contango’s or Mid-Con’s prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or achievability thereof, and, accordingly, such independent accountants assume no responsibility for, and disclaim any association with, Contango’s and Mid-Con’s prospective financial information. The reports of such independent accountants included or incorporated by reference herein, as applicable, relate exclusively to the historical financial information of the entities named in those reports and do not cover any other information in this joint consent statement/information statement/prospectus and should not be read to do so. See “The Merger—Certain Contango and Mid-Con Unaudited Prospective Financial and Operating Information” for more information.

 

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The opinions of Contango’s and Mid-Con’s respective financial advisors will not reflect changes in circumstances between the signing of the merger agreement and the completion of the merger.

Each of Contango and Mid-Con has received opinions from its financial advisors in connection with the signing of the merger agreement, but has not obtained any updated opinion from its financial advisors as of the date of this joint consent statement/information statement/prospectus. Changes in the operations and prospects of Contango or Mid-Con, general market and economic conditions and other factors that may be beyond the control of Contango or Mid-Con, and on which the companies’ respective financial advisors’ opinions were based, may significantly alter the value of Contango or Mid-Con or the prices of the shares of Contango common stock or Mid-Con common units by the time the merger is completed. The opinions do not speak as of the time the merger will be completed or as of any date other than the date of such opinions. Because neither Contango nor Mid-Con currently anticipates asking its financial advisors to update their opinions, the opinions will not address the fairness of the merger consideration from a financial point of view at the time the merger is completed.

Failure to complete the merger could negatively impact Contango’s or Mid-Con’s stock price and unit price, respectively, and have a material adverse effect on their results of operations, cash flows and financial positions.

If the merger is not completed for any reason, the ongoing businesses of Contango and Mid-Con may be materially adversely affected and, without realizing any of the benefits of having completed the merger, Contango and Mid-Con would be subject to a number of risks, including the following:

 

   

Contango and Mid-Con may experience negative reactions from the financial markets, including negative impacts on their respective stock and unit prices;

 

   

Contango and Mid-Con and their respective subsidiaries may experience negative reactions from their respective customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners;

 

   

Contango and Mid-Con will still be required to pay certain significant costs relating to the merger, such as legal, accounting, financial advisor and printing fees;

 

   

Contango or Mid-Con may be required to pay a termination fee as required by the merger agreement;

 

   

the merger agreement places certain restrictions on the conduct of the respective businesses pursuant to the terms of the merger agreement, which may delay or prevent the respective companies from undertaking business opportunities that, absent the merger agreement, may have been pursued;

 

   

matters relating to the merger (including integration planning) require substantial commitments of time and resources by each company’s management, which may have resulted in the distraction of each company’s management from ongoing business operations and pursuing other opportunities that could have been beneficial to the companies; and

 

   

litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against Contango or Mid-Con to perform their respective obligations pursuant to the merger agreement.

If the merger is not completed, the risks described above may materialize and they may have a material adverse effect on Contango’s or Mid-Con’s results of operations, cash flows, financial position and respective stock and unit prices.

The shares of Contango common stock to be received by Mid-Con unitholders upon completion of the merger will have different rights from Mid-Con common units.

Upon completion of the merger, Mid-Con unitholders will no longer be unitholders of Mid-Con. Instead, former Mid-Con unitholders will become Contango shareholders, and their rights as Contango shareholders will

 

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be governed by the laws of the state of Texas, subject to and governed by the terms of the Amended and Restated Certificate of Formation of Contango and the Bylaws of Contango. The laws of the state of Texas applicable to corporations and terms of the Amended and Restated Certificate of Formation of Contango and the Bylaws of Contango are in many respects different than the laws of the state of Delaware applicable to limited partnerships and the Certificate of Limited Partnership of Mid-Con and the Mid-Con LPA, which currently govern the rights of Mid-Con unitholders. See “Comparison of Shareholder and Unitholder Rights” for a discussion of the different rights associated with shares of Contango common stock and Mid-Con common units.

Contango and Mid-Con are expected to incur significant transaction costs in connection with the merger, which may be in excess of those anticipated by them.

Contango and Mid-Con have incurred and are expected to continue to incur a number of non-recurring costs associated with negotiating and completing the merger, combining the operations of the two companies and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by Contango and Mid-Con whether or not the merger is completed. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors, employee retention, severance and benefit costs and filing fees. Contango will also incur costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and other employment-related costs. Contango and Mid-Con will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the merger and the integration of the two companies’ businesses. While Contango and Mid-Con have assumed that a certain level of expenses would be incurred, there are many factors beyond their control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all. The costs described above and any unanticipated costs and expenses, many of which will be borne by Contango or Mid-Con even if the merger is not completed, could have an adverse effect on Contango’s or Mid-Con’s financial condition and operating results.

Litigation relating to the merger could result in an injunction preventing the completion of the merger and/or substantial costs to Contango and Mid-Con.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Contango’s and Mid-Con’s respective liquidity and financial condition.

Lawsuits that may be brought against Contango, Mid-Con or their respective directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the merger agreement already implemented and to otherwise enjoin the parties from consummating the merger. One of the conditions to the closing of the merger is that no order or injunction issued by any court or other governmental entity of competent jurisdiction or other legal restraint or prohibition has been entered and continues to be in effect and no law has been adopted or is effective, in either case, that prohibits or makes illegal the closing of the merger. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the merger, that injunction may delay or prevent the merger from being completed within the expected timeframe or at all, which may adversely affect Contango’s and Mid-Con’s respective business, financial position and results of operation. Either Contango or Mid-Con may terminate the merger agreement if any court of competent jurisdiction or other governmental entity issues any judgment, order, injunction, rule or decree, or takes any other action restraining, enjoining or otherwise prohibiting any of the transactions contemplated by the merger agreement, and such judgment, order, injunction, rule, decree or other action becomes final and nonappealable, so long as the party seeking to terminate the merger agreement has used its reasonable best efforts to contest, appeal and remove such judgment, order, injunction, rule, decree, ruling or other action in accordance with the terms of the merger agreement.

 

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There can be no assurance that any of the defendants will be successful in the outcome of any pending lawsuit or any potential lawsuits. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is completed may adversely affect Contango’s or Mid-Con’s business, financial condition, results of operations and cash flows.

See the section titled “The Merger—Litigation Related to the Merger” for more information about litigation related to the merger that has been commenced prior to the date of this joint consent statement/information statement/prospectus.

The Mid-Con LPA limits the duties of the Mid-Con board to Mid-Con unitholders and restricts the remedies available to Mid-Con unitholders for actions taken by the Mid-Con GP that might otherwise constitute breaches of its duties.

In light of potential conflicts of interest between the Mid-Con affiliated shareholders, on the one hand, and the Mid-Con unaffiliated public unitholders, on the other hand, the Mid-Con board submitted the merger and related matters to the Mid-Con conflicts committee for, among other things, review, evaluation, negotiation and possible approval of a majority of its members, which is referred to as “Special Approval” in the Mid-Con LPA and this joint consent statement/information statement/prospectus. Under the Mid-Con LPA:

 

   

any resolutions or course of action by Mid-Con GP or its affiliates in respect of a conflict of interest will be deemed to be in good faith and not constitute a breach of the Mid-Con LPA or of any duty stated or implied by law, in equity or otherwise, if the resolution or course of action is approved by Special Approval; and

 

   

Mid-Con GP may consult with legal counsel and investment bankers selected by it, and any action taken or omitted to be taken in reliance upon the opinion of such persons as to matters that Mid-Con GP reasonably believes to be within such person’s professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.

The Mid-Con conflicts committee reviewed, negotiated and evaluated the merger agreement, the Mid-Con voting agreements, the merger and related matters on behalf of the Mid-Con unaffiliated public unitholders. Among other things, the Mid-Con conflicts committee, by unanimous vote, (i) determined that the merger agreement and the transactions contemplated thereby are in, or not opposed to, the best interests of Mid-Con and the Mid-Con unaffiliated public unitholders, (ii) approved the merger agreement and the transactions contemplated thereby, including the merger (the foregoing constituting “Special Approval” pursuant to the Mid-Con LPA), and (iii) recommended to the Mid-Con board the approval of the merger agreement and the transactions contemplated thereby, including the merger. The duties of Mid-Con GP, the Mid-Con board and the Mid-Con conflicts committee to Mid-Con unitholders in connection with the merger are substantially limited by the Mid-Con LPA.

Certain directors and executive officers of Mid-Con GP may have interests that differ in certain respects from Mid-Con unitholders.

In considering the recommendations of the Mid-Con conflicts committee and the Mid-Con board to approve the merger agreement and the merger, Mid-Con unitholders should consider that some of the directors and executive officers of Mid-Con GP who are not members of the Mid-Con conflicts committee may have interests that differ from, or are in addition to, their interests as holders of Mid-Con common units.

The merger may be completed even though material adverse changes subsequent to the announcement of the merger, such as industry-wide changes or other events, may occur.

In general, either party can refuse to complete the merger if there is a material adverse change affecting the other party. However, some types of changes do not permit either party to refuse to complete the transaction,

 

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even if such changes would have a material adverse effect on either of the parties. For example, a worsening of Contango’s or Mid-Con’s financial condition or results of operations due to a decrease in commodity prices or general economic conditions would not give the other party the right to refuse to complete the merger. If adverse changes occur that affect either party but the parties are still required to complete the transaction, Contango’s share price, business and financial results after the merger may suffer.

The COVID-19 outbreak may adversely affect Contango’s and Mid-Con’s ability to timely consummate the merger.

COVID-19 and the various precautionary measures attempting to limit its spread taken by many governmental authorities worldwide has had a severe effect on global markets and the global economy. The extent to which the COVID-19 pandemic impacts Contango’s and Mid-Con’s respective business operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the nature and extent of governmental actions taken to contain it or treat its impact, among others. COVID-19 and official actions in response to it have made it more challenging for Contango, Mid-Con and relevant third parties to adequately staff their respective businesses and operations, and may cause delay in the companies’ ability to obtain the relevant approvals for the consummation of the merger.

Risks Relating to Contango Following the Merger

Contango may be unable to integrate the business of Mid-Con successfully or realize the anticipated benefits of the merger.

The merger involves the combination of two companies that currently operate as independent public companies. The combination of two independent businesses is complex, costly and time consuming, and each of Contango and Mid-Con will be required to devote significant management attention and resources to integrating their respective business practices and operations. Potential difficulties that the companies may encounter as part of the integration process include the following:

 

   

the inability to successfully combine the business of Mid-Con in a manner that permits Contango to achieve, on a timely basis or at all, the enhanced revenue opportunities and cost savings and other benefits anticipated to result from the merger;

 

   

complexities associated with managing the combined businesses, including difficulty addressing possible differences in operational philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;

 

   

the assumption of contractual obligations with less favorable or more restrictive terms; and

 

   

potential unknown liabilities and unforeseen increased expenses or delays associated with the merger.

In addition, Contango and Mid-Con have previously operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in:

 

   

diversion of the attention of each company’s management; and

 

   

the disruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies.

Any of these issues could adversely affect each company’s ability to maintain relationships with customers, suppliers, employees and other constituencies or achieve the anticipated benefits of the merger, or could reduce each company’s earnings or otherwise adversely affect the business and financial results of Contango following the merger.

 

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The synergies attributable to the merger may vary from expectations.

Contango may fail to realize the anticipated benefits and synergies expected from the merger, which could adversely affect its business, financial condition and operating results. The success of the merger will depend, in significant part, on Contango’s ability to successfully integrate the acquired business, grow the revenue of the combined company and realize the anticipated strategic benefits and synergies from the combination. This growth and the anticipated benefits of the transaction may not be realized fully or at all, or may take longer to realize than expected. Actual operating, technological, strategic and revenue opportunities, if achieved at all, may be less significant than expected or may take longer to achieve than anticipated. If Contango is not able to achieve these objectives and realize the anticipated benefits and synergies expected from the merger within the anticipated timing or at all, Contango’s business, financial condition and operating results may be adversely affected.

The merger may result in a loss of customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners and may result in the termination of existing contracts.

Following the merger, some of the customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners of Contango or Mid-Con may terminate or scale back their current or prospective business relationships with Mid-Con. Some customers may not wish to source a larger percentage of their needs from a single company or may feel that Contango is too closely allied with one of their competitors. In addition, Contango and Mid-Con have contracts with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners that may require Contango or Mid-Con to obtain consents from these other parties in connection with the merger, which may not be obtained on favorable terms or at all. If relationships with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners are adversely affected by the merger, or if Contango, following the merger, loses the benefits of the contracts of Contango or Mid-Con, Contango’s business and financial performance could suffer.

The unaudited pro forma condensed consolidated combined financial statements included in this joint consent statement/information statement/prospectus are based on a number of preliminary estimates and assumptions, and the actual results of operations, cash flows and financial position of Contango after the merger may differ materially.

The unaudited pro forma information in this joint consent statement/information statement/prospectus is presented for illustrative purposes only, has been prepared based on available information and certain assumptions and estimates that Contango and Mid-Con believe are reasonable, and is not necessarily indicative of what Contango’s actual financial position or results of operations would have been had the pro forma events been completed on the dates indicated. Further, Contango’s actual results and financial position after the pro forma events occur may differ materially and adversely from the unaudited pro forma information included in this joint consent statement/information statement/prospectus. The unaudited pro forma condensed consolidated combined financial statements have been prepared with the assumption that Contango will be identified as the acquirer under GAAP and reflect adjustments based upon preliminary estimates of the fair value of assets to be acquired and liabilities to be assumed.

Following the completion of the merger, Contango may incorporate Mid-Con’s hedging activities into Contango’s business, and Contango may be exposed to additional commodity price risks arising from such hedges.

To mitigate its exposure to changes in commodity prices, Mid-Con hedges oil prices from time to time, primarily through the use of commodity derivative contracts. If Contango assumes existing Mid-Con hedges, Contango will bear the economic impact of all of Mid-Con’s current hedges following the completion of the merger. Actual crude oil prices may differ from the combined company’s expectations and, as a result, such hedges may or may not have a negative impact on Contango’s business.

 

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Tax Risks Related to the Merger and the Ownership of Contango Common Stock Received in the Merger

In addition to reading the following risk factors, you are urged to read “Material U.S. Federal Income Tax Consequences” for a more complete discussion of the expected U.S. federal income tax consequences of the merger and owning and disposing of Contango common stock received in the merger.

The merger will be a taxable transaction and, in such case, the resulting tax liability of a Mid-Con unitholder, if any, will depend on the unitholder’s particular situation. The tax liability of a Mid-con unitholder as a result of the Merger could be more than expected.

Mid-Con unitholders will receive Contango common stock as the merger consideration. Although Mid-Con’s unitholders will receive no cash consideration, the merger will be treated as a taxable sale by U.S. holders (as defined in “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) of Mid-Con common units for U.S. federal income tax purposes. In such case, as a result of the merger, a Mid-Con unitholder will recognize gain or loss for U.S. federal income tax purposes equal to the difference between such unitholder’s amount realized and the unitholder’s adjusted tax basis in the Mid-Con common units, which will be increased by the U.S. holder’s share of certain items related to business interest not yet deductible by such U.S. holder due to applicable limitations on the deductibility of such business interest. The amount of gain or loss recognized by each Mid-Con unitholder in the merger will vary depending on each unitholder’s particular situation, including the value of the shares of Contango common stock received by each unitholder in the merger, the adjusted tax basis in the Mid-Con common units exchanged by each unitholder in the merger, and the amount of any suspended passive losses that may be available to a particular unitholder to offset a portion of the gain recognized by the unitholder.

Because the value of any Contango common stock received in the merger will not be known until the effective time, a Mid-Con unitholder will not be able to determine its amount realized, and therefore its taxable gain or loss, until such time. In addition, because prior distributions in excess of a Mid-Con unitholder’s allocable share of Mid-Con’s net taxable income decrease the unitholder’s tax basis in its common units, the amount, if any, of the prior excess distributions with respect to such Mid-Con common units will, in effect, become taxable income to a unitholder if the aggregate value of the consideration received in the merger is greater than the unitholder’s adjusted tax basis in its common units, even if the aggregate value of the consideration received in the merger is less than the unitholder’s original cost basis in its common units. Furthermore, a portion of any gain or loss, which could be substantial, will be separately computed and taxed as ordinary income to the extent attributable to “unrealized receivables,” including depreciation recapture, or to “inventory items” owned by Mid-Con and its subsidiaries. Consequently, a Mid-Con unitholder may recognize both ordinary income and capital loss upon the exchange of Mid-Con common units in the merger.

For a more complete discussion of the U.S. federal income tax consequences of the merger, please read “Material U.S. Federal Income Tax Consequences.

Other Risks Relating to Contango and Mid-Con

As a result of entering into the merger agreement, Contango’s and Mid-Con’s businesses are and will be subject to the risks described above. In addition, Contango and Mid-Con are, and following completion of the merger, Contango will be, subject to the risks described in Contango’s Annual Report on Form 10-K for the year ended December 31, 2019 as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are filed with the SEC and incorporated by reference into this joint consent statement/information statement/prospectus, and Mid-Con’s Annual Report on Form 10-K for the year ended December 31, 2019, recast to give effect to the 2020 reverse split, and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, attached as Annexes D and E, respectively, to this joint consent statement/information statement/prospectus. See “Where You Can Find More Information” for the location of information incorporated by reference into this joint consent statement/information statement/prospectus.

 

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WRITTEN CONSENTS OF HOLDERS OF MID-CON COMMON UNITS

Mid-Con Common Units Entitled to Consent and Consent Required

Only holders of outstanding Mid-Con common units as of the close of business on the Mid-Con record date will be entitled to give or withhold consent with respect to the Mid-Con merger proposal and the amended and restated LTIP. The approval of the Mid-Con merger proposal and the amended and restated LTIP requires the affirmative vote or consent of the holders of at least a majority of the outstanding Mid-Con common units.

Under the Mid-Con voting agreements, the Mid-Con voting agreement unitholders, which beneficially owned 8,107,900 Mid-Con common units in the aggregate as of November 30, 2020, have irrevocably agreed to deliver the Mid-Con written consent approving the Mid-Con merger proposal within two business days after the effectiveness of the registration statement of which this joint consent statement/information statement/prospectus forms a part. The delivery of the Mid-Con written consent by the Mid-Con voting agreement unitholders with respect to their Mid-Con common units will be sufficient to approve the Mid-Con merger proposal.

Submission of Consents

Holders of Mid-Con common units at the close of business on the Mid-Con record date may consent to (i) the approval of the Mid-Con merger proposal and (ii) the approval of the amended and restated LTIP with respect to their Mid-Con common units by completing, dating and signing the enclosed written consent furnished with this joint consent statement/information statement/prospectus and returning it to Mid-Con.

If you hold Mid-Con common units as of the Mid-Con record date and you wish to give your written consent, you must fill out the enclosed written consent, date and sign it, and promptly return it to Mid-Con. Once you have completed, dated and signed the written consent, you may deliver it to Mid-Con by emailing a .pdf copy of your written consent to MSA.OwnerRelations@contango.com or by mailing your written consent to Mid-Con Energy Partners, LP at 2431 East 61st Street, Suite 800, Tulsa, Oklahoma 74136 Attention: Investor Relations. If you do not return your written consent, it will have the same effect as a vote against the approval of the Mid-Con merger proposal and the amended and restated LTIP.

Upon the later of 10 business days after this joint consent statement/information statement/prospectus is sent to holders of Mid-Con common units and the date on which a sufficient number of consents to approve and adopt the merger proposal have been received, the consent process will conclude (such date, the “Solicitation Deadline”). The delivery of the Mid-Con written consent with respect to the Mid-Con common units owned by the Mid-Con voting agreement unitholders approving the Mid-Con merger proposal will be sufficient to approve the Mid-Con merger proposal.

If a sufficient number of consents are not received to approve the amended and restated LTIP prior to the Solicitation Deadline, Mid-Con will cease accepting consents for the approval of the amended and restated LTIP. As discussed below in the section entitled “The Merger—Interests of Certain Mid-Con Directors and Executive Officers in the Merger”, if the amended and restated LTIP is not approved the equity-settled phantom units granted to Mid-Con directors will automatically terminate and cease to be outstanding.

Revocation of Consents

Your consent may be revoked at any time before the consents of a sufficient number of Mid-Con common units to approve the Mid-Con merger proposal and the amended and restated LTIP have been delivered to the secretary of Mid-Con. If you wish to revoke a previously given consent before that time, you may do so by emailing a .pdf copy of such revocation to MSA.OwnerRelations@contango.com or by mailing such revocation to Mid-Con Energy Partners, LP at 2431 East 61st Street, Suite 800, Tulsa, Oklahoma 74136 Attention: Investor Relations.

Expenses

The expense of preparing, printing and mailing these consent materials is being borne equally by Mid-Con and Contango. For a description of the expense reimbursement provisions of the merger agreement, see the section entitled “The Merger Agreement—Termination Fees and Expense Reimbursement.

 

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THE MERGER

This section of the joint consent statement/information statement/prospectus describes the material aspects of the proposed merger. This section may not contain all of the information that is important to you. You should carefully read this entire joint consent statement/information statement/prospectus and the documents incorporated by reference into this joint consent statement/information statement/prospectus, including the full text of the merger agreement, a copy of which is attached to this joint consent statement/information statement/prospectus as Annex A, for a more complete understanding of the proposed merger and the transactions related thereto. In addition, important business and financial information about each of Contango and Mid-Con is included in or incorporated by reference into this joint consent statement/information statement/prospectus Please see “Where You Can Find More Information.”

Background of the Merger

The terms of the merger are the result of arm’s length negotiations between Contango and the Mid-Con conflicts committee. The following is a summary of the events leading up to the execution of the merger agreement and the key meetings, negotiations, discussions and actions by and among Contango, Mid-Con, the Mid-Con conflicts committee and their respective representatives that preceded the public announcement of the merger. For purposes of the following, except where specifically noted, exchange ratios and other per unit amounts prior to April 9, 2020 do not give effect to the 2020 reverse split.

As part of Contango’s ongoing strategic planning process, the Contango board, together with Contango’s executive management team, regularly reviews and assesses Contango’s long-term strategic plans and goals, opportunities, overall industry trends, the competitive environment in which Contango operates and Contango’s short- and long-term performance. In addition, Messrs. Wilkie Colyer, the Chief Executive Officer of Contango, and Farley Dakan, the President of Contango, regularly meet with their counterparts at both smaller and similarly-sized exploration and production companies to discuss industry trends and other matters. During these meetings, Messrs. Colyer and Dakan occasionally engage in discussions with potential counterparties of all sizes regarding recent and potential consolidation activity in the industry. In connection with these activities, the Contango board has met periodically in the ordinary course to receive updates from Messrs. Colyer and Dakan on these discussions and to consider and evaluate potential strategic transactions, including acquisitions and joint ventures.

In January 2019, Mr. Colyer, who was at that time a member of the Mid-Con board, and Mr. Jeffrey Olmstead, then Chief Executive Officer and President of Mid-Con, met on multiple occasions to discuss a potential strategic transaction between Contango and Mid-Con. In furtherance of these discussions, the parties executed a mutual non-disclosure agreement dated February 11, 2019 to exchange material, non-public information, which had a one-year term (the “2019 NDA”). The 2019 NDA did not include a standstill.

On February 12, 2019, the Mid-Con board held a telephone conference at which Mr. J. Olmstead provided an update to the Mid-Con board relating to a potential transaction with Contango. Given the potential conflict of interest that could arise as a result of (a) Mr. Colyer’s roles as Chief Executive Officer of Contango and as a member of the Mid-Con board, (b) Peter A. Leidel’s relationship with Mid-Con Energy III, LLC and its ownership of Mid-Con preferred units, and (c) Messrs. J. Olmstead and Charles R. Olmstead, Executive Chairman of the Mid-Con board, and their ownership of Mid-Con Energy Operating, LLC and Mid-Con GP, the Mid-Con board delegated negotiation of the potential transaction to the Mid-Con conflicts committee. Mr. Charles L. McLawhorn, III, then Vice President and General Counsel of Mid-Con, advised that he would follow-up with formal resolutions delegating this authority and that the conflicts committee would need to engage legal and financial advisors.

On February 13, 2019, representatives of senior management of Contango and Mid-Con held a kick-off meeting in Houston, Texas, attended by Messrs. John Goff, a member of the Contango board, and representatives

 

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from Gibson Dunn & Crutcher LLP (“Gibson Dunn”), Contango’s outside counsel, and Intrepid Partners, LLC (“Intrepid”), Contango’s financial advisor with whom Contango had entered into an engagement letter on November 6, 2018, on behalf of Contango, and representatives from Sidley Austin LLP (“Sidley Austin”), Mid-Con’s outside counsel, and Petrie Partners, which was acting on behalf of the Mid-Con conflicts committee.

Following the February 12 meeting of the Mid-Con board, as a result of the potential conflicts of interest, the Mid-Con board formally authorized, via unanimous written consent, the Mid-Con conflicts committee to evaluate a strategic transaction with Contango. The Mid-Con conflicts committee retained Sidley Austin to act as counsel to the Mid-Con conflicts committee in connection with a potential transaction with Contango.

The Mid-Con conflicts committee also determined to engage Petrie Partners as its financial advisor because of Petrie Partners’ knowledge and expertise with respect to public merger and acquisition transactions, particularly involving exploration and production companies. An engagement letter dated as of February 8, 2019 detailing the terms of Petrie Partners’ engagement was executed after the Mid-Con conflicts committee, with Sidley Austin’s assistance, had reviewed and negotiated acceptable terms thereof.

On February 19, 2019, the Contango board met with representatives of Gibson Dunn. Representatives of Gibson Dunn provided an overview of the potential transaction with Mid-Con, the Contango board’s fiduciary duties and potential conflicts of interest arising as a result of Mr. J. Goff’s directorship in Contango and his beneficial ownership interest in Mid-Con and Contango and Mr. Colyer’s directorship in Mid-Con, officer role and directorship in Contango and past business relationships with Mr. J. Goff. Following discussions, as a result of the potential conflicts of interest, the Contango board unanimously formed and delegated to a special committee of the Contango board comprising entirely disinterested directors (the “Contango special committee”) the power and authority of the Contango board to (i) negotiate, evaluate and approve or disapprove any potential transaction with Mid-Con and the terms thereof on behalf of Contango, and (ii) supervise and direct the officers of Contango, except for Mr. Colyer, who would not be involved in negotiating the potential transaction, with respect to their involvement in the potential transaction.

Following the formation of the Contango special committee, the Contango special committee met with representatives of Gibson Dunn to discuss the potential transaction and the expected timeline thereof.

Beginning February 20, 2019, Contango and Mid-Con, as well as their respective financial and legal advisors, conducted a formal diligence process regarding the assets of both companies.

On March 4, 2019, the Contango special committee delivered to the Mid-Con conflicts committee an indication of interest relating to a proposed business combination between Contango and Mid-Con (the “2019 proposed transaction”). The indication of interest included, among other things, that (i) each outstanding Mid-Con common unit would be exchanged for 0.3291 shares (or 6.582 shares after giving effect to the 2020 reverse split) of newly issued common stock of a new parent holding company for the combined company’s business, (ii) each Class A Preferred Unit of Mid-Con would be exchanged for 0.6880 shares of the new parent holding company, (iii) each Class B Preferred Unit of Mid-Con would be exchanged for 0.5246 shares of the new parent holding company and (iv) the membership interests in the Mid-Con GP would be exchanged for an aggregate of 118,491 shares of the new parent holding company.

On March 5, 2019, representatives of Gibson Dunn delivered an initial draft of the merger agreement to Sidley Austin.

On March 11, 2019, the Contango special committee delivered to the Mid-Con conflicts committee a revised indication of interest relating to the 2019 proposed transaction. The revised indication of interest included, among other things, that (i) each outstanding Mid-Con common unit would be exchanged for 0.3291 shares (or 6.582 shares after giving effect to the 2020 reverse split) of newly issued common stock of a new parent holding company for the combined company’s business, (ii) each Class A Preferred Unit of Mid-Con would be exchanged for 0.7341 shares of the new parent holding company, (iii) each Class B Preferred Unit of Mid-Con would be exchanged for

 

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0.5792 shares of the new parent holding company and (iv) the membership interests in the Mid-Con GP would be exchanged for an aggregate of 118,491 shares of the new parent holding company.

On March 26, 2019, the Mid-Con conflicts committee delivered a counterproposal to the Contango special committee. The counterproposal included, among other things, that (i) each outstanding Mid-Con common unit would be exchanged for 0.4972 shares (or 9.944 shares after giving effect to the 2020 reverse split) of newly issued common stock of a new parent holding company for the combined company’s business, (ii) each Class A Preferred Unit of Mid-Con owned by Mr. J. Goff or any affiliate thereof would be exchanged for 0.4972 shares of the new parent holding company, (iii) each other Class A Preferred Unit of Mid-Con would be exchanged for 0.7444 shares of the new parent holding company, (iv) each Class B Preferred Unit of Mid-Con owned by Mr. J. Goff or any affiliate thereof would be exchanged for 0.4972 shares of the new parent holding company, (v) each other Class B Preferred Unit of Mid-Con would be exchanged for 0.5297 shares of the new parent holding company, (vi) the membership interests in the Mid-Con GP would be exchanged for 0.4972 shares of the new parent holding company, and (vii) the new parent holding company would have a nine member board of directors, comprising two directors from the Contango board, two directors from the Mid-Con board, two independent directors to be named by the Contango special committee and three independent directors to be name by the Mid-Con conflicts committee.

Between March 27, 2019 and May 3, 2019, the Contango special committee and the Mid-Con conflicts committee exchanged several proposals and counterproposals relating to the potential transaction and evaluated the terms thereof with their respective legal and financial advisors through several telephone conferences and the review of materials and presentations prepared by their respective legal and financial advisors. During this time representatives of Gibson Dunn and Sidley Austin further negotiated the terms of the merger agreement, the voting agreements that certain Contango shareholders and Mid-Con unitholders would enter into in connection with the merger agreement and the proposed governance documents of the combined company.

On April 4, 2019, Mr. Cameron Smith, Chairman of the Mid-Con conflicts committee, delivered a letter to Mr. Joseph J. Romano, Chairman of the Contango board, stating, among other things, that the Mid-Con conflicts committee had concluded that the parties’ differences regarding relative valuation and corporate governance were too significant to be bridged.

Later in April, Mr. J. Goff met with the members of the Mid-Con conflicts committee to discuss these differences and to provide an outlook for the combined company.

On April 18, 2019, representatives of Sidley Austin delivered a revised draft of the merger agreement to Gibson Dunn. The revised merger agreement included, among other things, a revised governance structure for the combined company and more reciprocal representations and warranties and interim operating covenant obligations.

On April 22, 2019, the Contango special committee proposed the following terms to the Mid-Con conflicts committee: (i) each outstanding Mid-Con common unit would be exchanged for 0.4135 shares (or 8.270 shares after giving effect to the 2020 reverse split) of newly issued common stock of a new parent holding company for the combined company’s business, (ii) each Class A Preferred Unit of Mid-Con would be exchanged for 0.7660 shares of the new parent holding company, (iii) each Class B Preferred Unit of Mid-Con would be exchanged for 0.5966 shares of the new parent holding company, and (iv) each outstanding membership interest in the Mid-Con GP would be exchanged for 0.4135 shares of the new parent holding company.

On May 1, 2019, the Mid-Con conflicts committee updated the Mid-Con board and officers on the status of the potential transaction.

On May 3, 2019, Mr. J. Olmstead contacted a representative of Contango to convey that the consideration last proposed by Contango for the Mid-Con common units did not fully reflect Mid-Con’s net asset value and that the Mid-Con conflicts committee was unwilling to proceed on those economic terms absent Mid-Con’s top executives constituting the executive management team of the combined company.

 

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On that same day, Mr. Smith delivered a letter to Mr. Romano stating that the Mid-Con conflicts committee was no longer willing to pursue a business combination between Contango and Mid-Con. Following delivery of such letter, negotiations relating to the 2019 proposed transaction ceased.

During January 2020, senior management of Contango and Mid-Con discussed prospects for reengaging on a potential transaction between Contango and Mid-Con. On January 28, 2020, the Contango board met with Intrepid and Gibson Dunn to discuss a revised proposal to Mid-Con contemplating a business combination transaction between the two companies.

The following day, the Contango board delivered to the Mid-Con board an indication of interest with the following proposed terms (the “Q1 2020 proposal”): (i) each outstanding Mid-Con common unit would be exchanged for 0.0959 shares (or 1.918 shares after giving effect to the 2020 reverse split) of Contango common stock or $0.35 (or $7.00 after giving effect to the 2020 reverse split) in cash, at the election of the holder thereof, (ii) each Class A Preferred Unit of Mid-Con would be exchanged for 0.6479 shares of Contango common stock, (iii) each Class B Preferred Unit of Mid-Con would be exchanged for 0.5449 shares of Contango common stock and (iv) Mid-Con GP would be acquired for an aggregate of 34,524 shares of Contango common stock or $126,013 in cash, at the election of its owners. Assuming all interests in Mid-Con and Mid-Con GP were exchanged for shares of Contango common stock, the proposal would result in former Mid-Con and Mid-Con GP unitholders collectively owning approximately 11% of the combined company.

At a meeting held on January 29, 2020, the Mid-Con board authorized the Mid-Con conflicts committee to review and negotiate a potential consolidation of Mid-Con with certain of its affiliates, including Mid-Con Energy Operating, LLC and Mid-Con Energy III, LLC (the “Mid-Con consolidation”). On January 30, 2020, Mid-Con announced that Mr. J. Olmstead had informed the Mid-Con board that he was taking a three-month sabbatical. As a result of this sabbatical, the Mid-Con board elected Mr. R. Olmstead as chief executive officer and Mr. Chad B. Roller as president.

At a meeting held on February 10, 2020, the Mid-Con board engaged Petrie Partners to review various strategic alternatives, including the Q1 2020 proposal, and an engagement letter detailing the terms of such engagement was executed that same day. Mr. Colyer did not participate in the vote of the Mid-Con board. During the meeting, Petrie Partners provided a preliminary analysis of the Q1 2020 proposal. Petrie Partners also advised the board on the consolidation.

On February 11, 2020, Mr. R. Olmstead delivered to Mr. Romano a written response to the Q1 2020 proposal requesting an in-person meeting between the parties and an extension of the 2019 NDA that expired on February 10, 2020. Contango and Mid-Con subsequently entered into a letter agreement extending the term of the 2019 NDA to March 15, 2020.

Between February 11, 2020 and February 26, 2020, Petrie Partners updated its financial analysis of Contango in light of the significant transformation of Contango since the last merger discussions, including its acquisition of properties from Will Energy Corporation and White Star Petroleum, LLC, the entry into a new credit facility led by JPMorgan Chase Bank, and the addition of institutional investors, including T. Rowe Price.

On February 26, 2020, the Mid-Con board held a telephone conference with Petrie Partners and Sidley Austin. Mr. Colyer recused himself from any discussion of the proposal or Mid-Con projections or forecasts. At this meeting, Petrie Partners reviewed with the Mid-Con board the Q1 2020 proposal. Based on the materials provided by Petrie Partners and the discussion between the parties related thereto, the Mid-Con board approved a counterproposal to the Q1 2020 proposal, which was delivered to the Contango board on February 26, 2020 (the “Q1 2020 counterproposal”). The Q1 2020 counterproposal included, among other things, that (i) each outstanding Mid-Con common unit would be exchanged for either 0.0959 (or 1.918 shares after giving effect to the 2020 reverse split) shares of Contango common stock or $0.37 (or $7.40 after giving effect to the 2020 reverse split) in cash, at the election of the holder, (ii) each Class A Preferred Unit of Mid-Con wo

 

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uld be exchanged for 0.6479 shares of Contango common stock, (iii) each Class B Preferred Unit of Mid-Con would be exchanged for 0.5449 shares of Contango common stock and (iv) the Mid-Con GP would be acquired for an aggregate of 34,524 shares of Contango common stock or $133,200 in cash.

On February 28, 2020, the Contango special committee met with representatives of Gibson Dunn and Intrepid to discuss the Q1 2020 counterproposal.

On March 2, 2020, Gibson Dunn delivered a revised draft of the merger agreement to Sidley Austin, which was based on the last draft discussed between the parties in 2019.

On March 6, 2020, Sidley Austin delivered a revised draft of the merger agreement to Gibson Dunn. The revised merger agreement included minor revisions to the merger mechanics and the interim operating and non-solicitation covenants.

On March 10, 2020, Messrs. Romano, Dakan, R. Olmstead, McLawhorn and Roller met to discuss the current market conditions in light of the global response to COVID-19, together with increased production from foreign oil producers (most notably Saudi Arabia and Russia), which resulted in steep declines in the prices of oil and natural gas. At that meeting, Contango informed Mid-Con that it would pause negotiations relating to the proposed transaction, given the deterioration in commodity prices and credit markets.

On March 12, 2020, Messrs. J. Goff, Travis Goff, President of Goff Capital, Inc., Roller and McLawhorn discussed Mid-Con’s plans to address the decrease in commodity prices, senior credit facility and maturity of the Mid-Con Class A and Class B Preferred Units in August 2021. During a Mid-Con board meeting on March 20, 2020, Mr. McLawhorn informed the Mid-Con board that holders of Mid-Con preferred units had initiated discussions regarding Mid-Con’s future plans given the market conditions and Mid-Con’s potential credit issues. Mr. Philip R. Houchin, then Chief Financial Officer of Mid-Con, provided an update to the Mid-Con board on his recent discussions with Wells Fargo in light of Mid-Con’s leverage ratio non-compliance and likely borrowing base deficiency. Mr. Houchin further stated that Wells Fargo had requested an updated forecast and action plan, as well as an update related to the upcoming maturity of Mid-Con’s preferred units. The Mid-Con board authorized Messrs. Roller and McLawhorn to engage in discussions with the holders of Mid-Con preferred units regarding strategic alternatives.

On March 23, 2020, Messrs. McLawhorn and Roller met in Fort Worth, Texas with Messrs. J. Goff and T. Goff, Ms. Jennifer Terrell, Chief Financial Officer of Goff Focused Strategies LLC, and Mr. Bernay Box, Chief Executive Officer of Bonanza Capital Ltd., as representatives of the holders of Mid-Con preferred units, and Messrs. Colyer and Dakan, as representatives of Contango, to discuss the strategic alternatives for addressing Mid-Con’s impending non-compliance and borrowing base deficiency under its senior credit facility and the maturity of the Mid-Con preferred units in August 2021.

On March 27, 2020, Messrs. McLawhorn and Roller provided an update to Messrs. John W. Brown, C. Fred Ball Jr., Cameron O. Smith and Peter A. Leidel, as representatives of the Mid-Con board, on the recent discussion with the holders of Mid-Con preferred units and the status of information being provided by Mid-Con to formulate a restructuring proposal.

On April 1 and 2, 2020, Messrs. McLawhorn and Roller met with Messrs. J. Goff and T. Goff, as representatives of the holders of Mid-Con preferred units, and Messrs. Colyer and Dakan, as representatives of Contango, to discuss negotiating a potential out-of-court restructuring of Mid-Con. The discussions focused on, among other things, plans to reduce Mid-Con’s general and administrative expenses and other operational costs, as well as a potential extension of the August 2021 maturity of the Mid-Con preferred units. Mr. J. Goff, speaking on behalf of the holders of the Mid-Con preferred units, conditioned any potential strategic transaction on restructuring Mid-Con’s corporate structure, including the removal of the Mid-Con GP.

 

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On April 2, 2020, Mr. T. Goff, as a representative of the holders of the Mid-Con preferred units, delivered a proposal to the Mid-Con board regarding a potential out-of-court restructuring of Mid-Con (the “Preferred Unit term sheet”). The Preferred Unit term sheet included, among other things, that Contango or one of its affiliates would serve as the new operator and service provider for Mid-Con, replacing Mid-Con Energy Operating, LLC.

On April 6, 2020, Messrs. Smith, Ball, Brown and Leidel, as representatives of the Mid-Con board, held a telephonic meeting with Messrs. J. Goff and T. Goff and Ms. Terrell, as representatives of the holders of Mid-Con preferred units, and representatives of Pillsbury Winthrop Shaw Pittman (“Pillsbury”), counsel to J. Goff, Messrs. Colyer and Dakan, as representatives of Contango, Messrs. Roller and McLawhorn and Sidley Austin to discuss the Preferred Unit term sheet. Discussions included a framework for restructuring the Mid-Con preferred units, with a potential proposal contingent on replacing the operator and services provider of Mid-Con to implement cost savings that would reduce Mid-Con’s debt.

Between April 6, 2020 and April 9, 2020, representatives of Mid-Con and the holders of Mid-Con preferred units exchanged several draft term sheets, which included, among other things, a conversion of Mid-Con preferred units into Mid-Con common units.

On April 13, 2020, Messrs. Houchin, McLawhorn, Roller and Ryan M. Logsdon, then Vice President of Business Development of Mid-Con, held a telephonic meeting with representatives from Wells Fargo regarding the potential Mid-Con restructuring as well as a waiver of the leverage ratio covenant in the Mid-Con credit facility.

On April 15, 2020, at the direction of the Mid-Con board, Mr. McLawhorn sent a revised Preferred Unit term sheet to Messrs. J. Goff and T. Goff, as representatives of the holders of the Mid-Con preferred units.

On April 15, 2020 and April 16, 2020, Messrs. Roller and McLawhorn met with Messrs. T. Goff, J. Goff, Dakan and Colyer and Ms. Terrell, as representatives of the holders of Mid-Con preferred units and Contango, and Pillsbury to negotiate the revised draft of the Preferred Unit term sheet. On April 16, 2020, Mr. T. Goff, as representative of the holders of Mid-Con preferred units, sent a revised term sheet to representatives of Mid-Con.

On April 17, 2020, Messrs. Leidel, Brown, Ball and Smith, as representatives of the Mid-Con board, met with Messrs. R. Olmstead, J. Olmstead, McLawhorn and Roller and GableGotwals, counsel for Mid-Con Energy Operating, LLC, and Sidley Austin to discuss the revised draft of the Preferred Unit term sheet. Following discussions, Mr. McLawhorn delivered a revised Preferred Unit term sheet, at the direction of the Mid-Con board, to Messrs. J. Goff and T. Goff, as representatives of the holders of Mid-Con preferred units.

On April 18, 2020, Messrs. Roller and McLawhorn met with Mr. T. Goff and Ms. Terrell, as representatives of the holders of preferred units, Pillsbury and Mr. Dakan, as representative of Contango, to further negotiate the Preferred Unit term sheet.

On April 19, 2020 and April 20, 2020, Messrs. Leidel, Brown, Ball and Smith, as representatives of the Mid-Con board, and Messrs. R. Olmstead, J. Olmstead, McLawhorn and Roller and GableGotwals and Sidley Austin met to discuss the Preferred Unit term sheet. At the direction of the Mid-Con board, Mr. McLawhorn sent the revised Preferred Unit term sheet to Messrs. J. Goff and T. Goff, as representatives of the holders of the Mid-Con preferred units, on April 20, 2020.

Later that day, on April 20, 2020, Messrs. Roller and McLawhorn and Sidley Austin met with Mr. T. Goff and Ms. Terrell, as representatives of the holders of Mid-Con preferred units, Pillsbury and Messrs. Colyer and Dakan, as representatives of Contango, and expressed agreement with the revised Preferred Unit term sheet (the “April 2020 term sheet”).

On April 22, 2020, Messrs. Houchin, J. Olmstead, Roller, McLawhorn and Logsdon and Messrs. J. Goff, T. Goff, Colyer and Dakan, as representatives of the holders of Mid-Con preferred units and Contango, met with

 

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Wells Fargo to discuss the restructuring of Mid-Con as outlined in the April 2020 term sheet. Wells Fargo indicated support for the out-of-court restructuring but indicated that they would need approval from Wells Fargo’s credit committee and ultimately would need support from the rest of the lenders in the bank group.

On April 28, 2020, Mr. McLawhorn updated the Mid-Con board on the Mid-Con restructuring, including a timeline thereof and the status of bank negotiations.

Between May 5, 2020 and May 7, 2020, representatives of Wells Fargo met with Messrs. McLawhorn, Houchin, Logsdon and Roller and Mr. T. Goff and Ms. Terrell, as representatives of the holders of Mid-Con preferred units, and Messrs. Colyer and Dakan, as representatives of Contango. During the meeting, Wells Fargo outlined the terms of a proposed waiver of the current default under the Mid-Con credit agreement.

On May 18, 2020, representatives of Mid-Con along with representatives of Wells Fargo hosted a spring redetermination meeting with the lenders of the Mid-Con credit facility to seek approval of the default waiver and proposed restructuring, as outlined in the April 2020 term sheet.

On June 2, 2020 and June 3, 2020, the Mid-Con board met to discuss and formally approve the Mid-Con restructuring.

On June 4, 2020, the transaction documents relating to the Mid-Con restructuring were executed by the relevant parties to the transaction, including Mid-Con, Mid-Con GP, the holders of Mid-Con preferred units and Contango. The restructuring provided for the conversion of all Series A and Series B Preferred Units of Mid-Con into common units, transfer of ownership of Mid-Con’s general partner to Mid-Con, resignation of all of Mid-Con’s directors, appointment of a new board of directors, and an agreement that Contango Resources, Inc., a subsidiary of Contango, would become the new operator of Mid-Con’s properties and services provider pursuant to the Management Services Agreement, replacing Mid-Con Energy Operating LLC, an affiliate of Messrs. R. Olmstead and J. Olmstead and Mid-Con’s general partner. A majority of the personnel that had been employed by Mid-Con Energy Operating LLC were subsequently hired by Contango Resources, Inc.

On June 30, 2020, Contango management approached Pillsbury to discuss legal aspects of a merger of Contango and Mid-Con. On July 10, 2020, representatives of Contango informally expressed interest in reopening merger discussions with members of the Mid-Con board. Given the potential conflict of interest that could arise as a result of Mr. T. Goff’s substantial ownership position in Mid-Con and relationship with Contango, the Mid-Con board delegated negotiation of the potential transaction to the Mid-Con conflicts committee, consisting of Mid-Con’s three independent directors, Messrs. Robert Boulware, Fred N. Reynolds and J. Caperton White. Pillsbury was engaged as counsel to the Mid-Con conflicts committee.

In July 2020, due to increases in commodity prices and improvement in the credit and equity markets, Contango reengaged with Intrepid to evaluate a potential business combination with Mid-Con. On July 14, 2020, following discussions among disinterested members of the Contango board and Intrepid and upon the Contango board’s review of the materials prepared by Intrepid relating to a potential business combination between Contango and Mid-Con, Mr. Romano, on behalf of the Contango board, delivered to the Mid-Con conflicts committee an indication of interest regarding a proposal to effect a business combination between Contango and Mid-Con (the “July 14 indication of interest”). Under the July 14 indication of interest, each outstanding Mid-Con common unit would be exchanged for 1.6422 shares of Contango common stock.

On July 15, 2020, Mr. Dakan held a telephone conference with the Mid-Con conflicts committee to discuss the terms of the July 14 indication of interest. During the telephone conference, Mr. Dakan provided an overview of the terms of the July 14 indication of interest.

Later that day, at a meeting of the Mid-Con conflicts committee attended by representatives of Pillsbury, the Mid-Con conflicts committee discussed the potential merits and certain considerations of the July 14 indication

 

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of interest. Pillsbury then reviewed the preliminary benefits, considerations and processes associated with the transaction proposed in the July 14 indication of interest. In addition, Pillsbury reviewed with the Mid-Con conflicts committee the fiduciary duties and responsibilities of directors implicated by the July 14 indication of interest. After discussion, the Mid-Con conflicts committee determined to further evaluate, with the assistance of Mid-Con’s legal and financial advisors, the July 14 indication of interest and a proposed strategic transaction with Contango. Pillsbury advised that they would follow-up with formal resolutions delegating this authority to the conflicts committee. The resolutions adopted by the Mid-Con board authorized the Mid-Con conflicts committee to (i) review and evaluate any potential conflicts arising in connection with the merger and any related agreements, (ii) consider, explore, review, analyze, and evaluate the terms and conditions of the merger and any related agreements, (iii) negotiate the terms and conditions of the merger and any related agreements, (iv) determine whether the merger and any related agreements are in, or not opposed to, the best interests of the merger and the unaffiliated public unitholders, and (v) determine whether or not to approve, and whether or not to recommend that the Mid-Con board approve, the merger and any related agreements, with any such approval and related recommendation by the Mid-Con conflicts committee constituting “Special Approval” as provided by Section 7.9 of the Mid-Con LPA.

On July 17, 2020, Messrs. Dakan, White and Boulware held a telephonic meeting to discuss the potential business combination and the terms of the July 14 indication of interest. Following the discussion, Mr. Boulware contacted Petrie Partners and confirmed that Petrie Partners would serve as a financial advisor to the Mid-Con conflicts committee under the terms of the February 10, 2020 engagement letter.

On July 20, 2020, the disinterested directors of the Contango board met with Messrs. Dakan, McLawhorn and Gibson Dunn to discuss the initial feedback received from the members of the Mid-Con conflicts committee at the July 17, 2020 telephonic meeting regarding the July 14 indication of interest and the terms and structure of the potential business combination.

On July 22, 2020, Mr. Boulware, on behalf of the Mid-Con conflicts committee, delivered a counterproposal to the July 14 indication of interest (the “July 22 counterproposal”). Later that day, Mr. Boulware held a telephonic meeting with Mr. Dakan to discuss the July 22 counterproposal. Following discussions among the disinterested directors of the Contango board, Mr. Dakan and Gibson Dunn, the Contango board delivered a revised indication of interest (the “July 22 indication of interest”) that incorporated the July 22 counterproposal, which included, among other things, (i) that each outstanding Mid-Con common unit would be exchanged for 1.6422 shares of Contango common stock and (ii) a put right with respect to the Pine Tree and Kitty assets held by Mid-Con in the event that a business combination between Contango and Mid-Con was not consummated in a timely manner. Mid-Con at that time was negotiating a sale of the Pine Tree and Kitty assets with a third party.

On July 24, 2020, at a telephonic meeting of the Mid-Con conflicts committee attended by representatives of Pillsbury and Petrie Partners, Petrie Partners discussed with the Mid-Con conflicts committee the then-current state of the energy markets, the implications of market conditions and trends on Mid-Con’s business, and several strategic options with respect to Mid-Con, including the merits and certain considerations of the July 22 indication of interest. Pillsbury then briefly reviewed the fiduciary duties and responsibilities of directors in connection with the July 22 indication of interest.

On July 28, 2020, the Mid-Con conflicts committee delivered a draft non-binding confidential term sheet to Contango outlining the proposed terms of the business combination between Contango and Mid-Con (the “July 28 term sheet”). The July 28 term sheet included, among other things, (i) that each outstanding Mid-Con common unit would be exchanged for a minimum of 1.6422 shares of Contango common stock, (ii) that the merger agreement would be subject to customary closing conditions, (iii) that a sufficient number of Contango shareholders and Mid-Con unitholders would deliver a sufficient number of written consents to approve the transactions contemplated by the merger agreement, (iv) that each party would be subject to a 30-day exclusivity period and (v) that Mid-Con would be granted a put right with respect to Mid-Con’s Pine Tree and Kitty assets pursuant to which Mid-Con could require Contango to purchase such assets for $9 million in the event that a business combination between Contango and Mid-Con was not consummated in a timely manner.

 

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On July 28, 2020, the disinterested directors of the Contango board held a telephone conference with Mr. Dakan and Gibson Dunn to discuss the July 28 term sheet and a proposed response. During the meeting, the parties discussed the closing conditions to the proposed business combination and the regulatory approvals related thereto. Additionally, Gibson Dunn provided an overview of the draft merger agreement being prepared by Gibson Dunn relating to be proposed business combination.

On July 29, 2020, Gibson Dunn delivered to Pillsbury a revised term sheet relating to the proposed transaction, which incorporated, among other things, a fixed exchange ratio of 1.6422 shares of Contango common stock and hydrocarbon hedging requirements by Mid-Con. On July 29, 2020, the Mid-Con conflicts committee, at a meeting attended by representatives of Pillsbury and Petrie Partners, discussed the July 28 term sheet with its advisors, including the proposed merger consideration and the newly requested hydrocarbon hedging requirements. Later, on July 29, 2020, Messrs. Boulware and White discussed certain terms of the July 28 term sheet with Mr. Dakan. Among other things, Messrs. Boulware and White requested that Mr. Dakan clarify the new requested hydrocarbon hedging requirements. On July 30, 2020, Gibson Dunn delivered a further revised term sheet, which included a 30-day exclusivity period expiring on August 29, 2020 (the “July 30 term sheet”).

On July 30, 2020, Messrs. Boulware and Dakan executed the July 30 term sheet and executed a mutual non-disclosure agreement to exchange material, non-public information, which had a one-year term. The agreement did not include a standstill.

Following the execution of the July 30 term sheet, the Mid-Con conflicts committee authorized representatives of Contango to begin discussions relating to a possible repayment or refinancing of Mid-Con’s credit facility in connection with the potential business combination with the lender banks under Mid-Con’s credit facility.

From late July through October 2020, Contango held discussions with the lender banks under the Contango and Mid-Con credit facilities to discuss the potential repayment or refinancing of the Mid-Con credit facility and expansion of the Contango credit facility following the contemplated business combination between Contango and Mid-Con.

On August 1, 2020, Gibson Dunn delivered an initial draft of the merger agreement to Pillsbury, which was based on the last draft discussed between the Gibson Dunn and Sidley Austin in March 2020.

On August 3, 2020 and August 5, 2020, Gibson Dunn, Pillsbury and Messrs. Dakan and McLawhorn held telephone conferences to discuss the draft merger agreement and the scope of Mid-Con’s representations and warranties and disclosure obligations related thereto. Pillsbury noted that they would discuss the draft merger agreement with members of Mid-Con management and the Mid-Con conflicts committee and provide a revised draft of the merger agreement for Contango’s and Gibson Dunn’s consideration following such discussions.

On August 3, 2020, Gibson Dunn delivered to Pillsbury an initial draft of a voting agreement pursuant to which certain Mid-Con unitholders would agree to vote in favor of the merger agreement and the transactions contemplated thereby.

On August 5, 2020, representatives of Pillsbury held telephonic meetings with Mr. Boulware and members of Mid-Con’s management team to discuss the contents of the merger agreement, including, among other items, closing conditions, representations and warranties, operating covenants and termination provisions. At the conclusion of these meetings, Mr. Boulware instructed Pillsbury to revise the merger agreement to revise the representations and warranties contained in the merger agreement and confirm that the interim operating covenants permitted Mid-Con to continue to operate its business in the ordinary course during the post-signing and pre-closing period.

Between August 6, 2020 and the date of announcement of agreement on a proposed business combination between Contango and Mid-Con, representatives of Gibson Dunn and Pillsbury further negotiated the terms of

 

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the merger agreement, the voting agreements that certain Contango shareholders and Mid-Con unitholders would enter into connection with the merger agreement and ancillary documents.

On August 13, 2020, Messrs. Dakan, White and Boulware held a telephone conference to discuss the initial feedback received from the discussions held with the Mid-Con credit facility lender banks.

On August 20, 2020, Gibson Dunn delivered a draft asset purchase agreement to Pillsbury, under which Contango would be required to purchase certain assets, which included the Pine Tree and Kitty assets, from Mid-Con if the merger was not consummated within 90 days after execution of the merger agreement. The parties proposed executing the asset purchase agreement contemporaneously with the proposed merger agreement.

On August 24, 2020, Messrs. Dakan, White and Boulware held a telephone conference to discuss the feedback received from the discussions held with the Mid-Con credit facility lender banks.

On August 27, 2020, Contango and Mid-Con executed an amendment to the July 30 term sheet which extended the expiration of the exclusivity period under the July 30 term sheet from August 29, 2020 to September 13, 2020.

On September 2, 2020, the Mid-Con conflicts committee held a telephonic meeting with Pillsbury and Petrie Partners to receive advice from Pillsbury regarding the draft documents and advice from Petrie Partners regarding the then current state of the energy markets, the proposed terms of the merger agreement and an overview of its preliminary financial analysis of the proposed transaction.

On September 12, 2020, Contango and Mid-Con executed a second amendment to the July 30 term sheet, which further extended the expiration of the exclusivity period under the July 30 term sheet from September 13, 2020 to September 28, 2020.

On September 23, 2020, Contango hosted its fall 2020 lender presentation, which was presented to all lender banks in Contango’s and Mid-Con’s credit facilities to seek commitments for a combined credit facility following the consummation of the proposed merger. Subsequent to this meeting and prior to the execution of the merger agreement, the lenders in both credit facilities committed to a combined credit facility led by JP Morgan Chase Bank, N.A. with an initial borrowing base of $130 million, subject to, among other conditions, closing of the proposed merger.

On October 2, 2020, Contango and Mid-Con executed a third amendment to the July 30 term sheet to extend the exclusivity period under the July 30 term sheet until October 16, 2020.

On October 15, 2020, Contango and Mid-Con executed a fourth amendment to the July 30 term sheet to extend the exclusivity period under the July 30 term sheet until October 31, 2020.

On October 22, 2020, the Mid-Con conflicts committee held a telephonic meeting with Pillsbury and Petrie Partners to receive advice from Pillsbury regarding the draft documents and advice from Petrie Partners regarding the proposed terms of the merger agreement. Pillsbury reviewed with the conflicts committee their fiduciary duties with respect to their evaluation of the proposed business combination and the key terms of the merger agreement, the voting agreements and the asset purchase agreement. Petrie Partners then provided an update of its preliminary financial analysis of the proposed transaction.

Later that day, at the direction of the Mid-Con conflicts committee, Mr. Boulware spoke with Mr. Dakan regarding the exchange ratio for the Contango shares to be offered to Mid-Con unitholders. Mr. Boulware informed Mr. Dakan that the Mid-Con conflicts committee believed that the proper exchange ratio was 1.9590 shares of Contango common stock for each Mid-Con common unit. After discussion, Mr. Dakan informed Mr. Boulware that he would discuss the revised proposal with the Contango disinterested directors.

 

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On October 23, 2020, Mr. Dakan, on behalf of the Contango board, informed Mr. Boulware that the Contango board believed that the proper exchange ratio was 1.7500 shares of Contango common stock for each Mid-Con common unit. Mr. Boulware informed Mr. Dakan that the Mid-Con conflicts committee was meeting later that day and would discuss the proposal.

Later that same day, the Mid-Con conflicts committee held a telephonic meeting with representatives of Pillsbury and Petrie Partners during which Petrie Partners discussed its preliminary financial analysis of the proposed transaction. The Mid-Con conflicts committee then instructed Petrie Partners to prepare a final presentation of its financial analysis in light of the current Contango proposal to be reviewed at a meeting to be held the following day.

On October 24, 2020, the Mid-Con conflicts committee held a telephonic meeting with representatives of Pillsbury and Petrie Partners during which Petrie Partners presented materials regarding its financial analysis of the proposed transaction. During the presentation, Petrie Partners provided, among other things, (i) an overview of the then current state of the energy markets, (ii) a summary of the terms of the proposed transaction, (iii) a situational analysis for each of Mid-Con and Contango, (iv) a summary of both the Mid-Con and Contango projections, including the underlying assumptions, and (v) a detailed review of the financial analyses performed for both Mid-Con and Contango, including discounted cash flow analysis, comparable transactions analysis, capital market comparison analysis, and a going concern analysis. Representatives of Petrie Partners then described, for the benefit of the Mid-Con conflicts committee, the significance of each valuation analysis method. During the presentation, the Mid-Con conflicts committee asked, and representatives of Petrie Partners answered, questions with respect to Petrie Partners’ financial analyses. Following additional discussion, and at the request of the Mid-Con conflicts committee, Petrie Partners rendered its oral opinion (subsequently confirmed in a written opinion dated October 25, 2020) that, as of the date of such opinion, and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Petrie Partners set forth in its written opinion, the merger consideration was fair, from a financial point of view, to the unaffiliated public unitholders of Mid-Con, as more fully described below in the section titled “—Opinion of the Mid-Con Conflicts Committee’s Financial Advisor.” Pillsbury then reviewed with the Mid-Con conflicts committee their fiduciary duties with respect to their evaluation of the proposed business combination and the key terms of the merger agreement, the voting agreements and the asset purchase agreement.

Following the presentation by Petrie Partners and the Pillsbury’s discussion of fiduciary duties, the Mid-Con conflicts committee then determined that the merger agreement and transactions contemplated thereby were in the best interest of Mid-Con, Mid-Con GP, and each of Mid-Con’s unitholders, including the Mid-Con public unaffiliated unitholders, and voted to recommend that the Mid-Con board approve the merger agreement and transactions contemplated thereby. Following the Mid-Con conflicts committee meeting, a meeting of the Mid-Con board was convened at which the Mid-Con board, by unanimous vote, (i) determined that the merger agreement and the transactions contemplated thereby were in, or not opposed to, the best interests of Mid-Con and its unitholders, (ii) approved the merger agreement and the transactions contemplated thereby, including the merger, and (iii) recommended approval of the merger agreement and the transactions contemplated thereby, including the merger, by the holders of Mid-Con common units. Mr. T. Goff did not participate in the vote of the Mid-Con board.

On October 24, 2020, Pillsbury and Gibson Dunn exchanged comments to the draft merger agreement, asset purchase agreement and draft voting agreements, as well as disclosure schedules. Later that day, the parties finalized the merger agreement, asset purchase agreement, voting agreements and disclosure schedules.

On the morning of October 25, 2020, the Contango board convened a meeting, with Messrs. Dakan, E. Joseph Grady, the Senior Vice President and Chief Financial Officer of Contango, McLawhorn, the now Senior Vice President and General Counsel of Contango, and Roller, the now Senior Vice President and Chief Operating Officer of Contango, and Gibson Dunn and Intrepid in attendance, to consider the proposed final terms of the proposed business combination with Mid-Con. Given the potential conflicts of interest that could arise as a result of Mr. Colyer’s roles as Chief Executive Officer of Contango, as a previous member of the Mid-Con board

 

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and due to past business relationships with Mr. J. Goff, and Mr. J. Goff’s beneficial ownership in Contango and Mid-Con, Mr. Colyer and Mr. J. Goff recused themselves from the meeting. Gibson Dunn reviewed with the Contango board their fiduciary duties with respect to their evaluation of the proposed business combination and the key terms of the merger agreement, the voting agreements and the asset purchase agreement. Intrepid then provided an overview of its financial analysis of the exchange ratio of 1.7500 shares of Contango common stock for each Mid-Con common unit and then delivered an oral opinion to the Contango board (subsequently confirmed in a written opinion dated the same date) that, as of the date of such opinion, and subject to the various assumptions, procedures, factors, qualifications, limitations and other matters as set forth in its written opinion, the exchange ratio was fair, from a financial point of view, to Contango, as more fully described below in the section titled “—Opinion of Contango’s Financial Advisor.” Prior to the conclusion of the meeting and following discussion of the proposed business combination by the disinterested directors of the Contango board, the Contango board, by unanimous vote of the disinterested directors, (i) determined that the merger agreement and the transactions contemplated thereby are in the best interests of Contango and its shareholders, (ii) approved the merger agreement and the transactions contemplated hereby, and (iii) resolved to recommend approval of the Contango share issuance by Contango’s shareholders.

Later that evening, Contango and Mid-Con executed the merger agreement and the asset purchase agreement, and Contango, Mid-Con and the other parties thereto executed the voting agreements.

On the morning of October 26, 2020, before the opening of the U.S. stock markets, Contango and Mid-Con issued a joint press release announcing the proposed merger and Contango hosted a conference call to discuss the transaction. Contango also issued a press release that morning announcing that it had priced a private placement of 26.5 million shares of Contango common stock for gross proceeds of approximately $39.7 million, with the proceeds intended to be used in connection with the merger and for general corporate purposes, including repayment of debt outstanding under Contango’s revolving credit facility.

Recommendation of the Contango Board and Reasons for the Merger

At a meeting duly called and held on October 25, 2020, the Contango board, by unanimous vote of the disinterested directors, (i) determined that the merger agreement and the transactions contemplated thereby are in the best interests of Contango and its shareholders, (ii) approved the merger agreement and the transactions contemplated thereby, and (iii) resolved to recommend approval of the Contango share issuance by Contango’s shareholders.

In deciding to approve the merger agreement and to recommend that Contango shareholders approve the Contango share issuance, the Contango board consulted with Contango’s management and financial and legal advisors and considered several factors.

The Contango board considered a number of factors when evaluating the merger, many of which support the Contango board’s determination that the merger agreement and transactions contemplated thereby were in the best interests of Contango and its shareholders. The Contango board considered these factors as a whole and without assigning relative weights to each such factor, and overall considered the relevant factors to be favorable to, and in support of, its determinations and recommendations. These factors included:

 

   

the belief that the merger will be accretive to Contango’s reserve base and cash flow, enhancing Contango’s post-closing liquidity and maintaining Contango’s strong balance sheet and low leverage profile;

 

   

that Mid-Con’s assets are oil weighted with a low production decline profile, complementing Contango’s higher production and cash flow profile;

 

   

that the merger leverages Contango’s knowledge of Mid-Con’s assets and operations through the management services agreement between Contango and Mid-Con;

 

   

the belief that the merger will result in cost savings through operational efficiencies and reductions in general and administrative expenses;

 

   

the addition of proved undeveloped inventory with low capital expenditure requirements and the opportunity for near-term conversion to proved developed producing properties;

 

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that the merger consideration represented a premium of 5% based on the 15-day volume weighted average price ending October 23, 2020, which the Contango board regarded as an attractive valuation relative to other transactions and peer comparisons;

 

   

that Contango will continue to be led by the current experienced Contango management team;

 

   

the terms of the merger agreement, including the structure of the transaction, the conditions to each party’s obligation to complete the merger and the ability of Contango to terminate the agreement under certain circumstances;

 

   

the belief that the restrictions imposed on Contango’s business and operations during the pendency of the merger are reasonable and not unduly burdensome;

 

   

that the exchange ratio is fixed and will not fluctuate in the event that the market price of Mid-Con common units increases relative to the market price of Contango common stock between the date of the merger agreement and the closing of the merger;

 

   

the likelihood of consummation of the merger and the Contango board’s evaluation of the likely time frame necessary to close the merger;

 

   

the Contango board’s knowledge of, and discussions with Contango management and its advisors regarding, Contango’s and Mid-Con’s business operations, financial conditions, results of operations and prospects, taking into account Contango’s due diligence investigation of Mid-Con;

 

   

that Mid-Con unitholders holding approximately 57% of the outstanding Mid-Con common units have entered into voting agreements with Contango obligating such unitholders to vote or cause to be voted all of their Mid-Con common units in favor of the approval of the Mid-Con merger proposal and against alternative transactions, as more fully described in the section titled ““Written Consents of Holders of Mid-Con Common Units—Mid-Con Common Units Entitled to Consent and Consent Required.””; and

 

   

Intrepid’s oral opinion rendered to the Contango board on October 25, 2020 and their written opinions dated the same date, to the effect that, as of the date thereof and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken as set forth in such written opinions, the exchange ratio of 1.7500 shares of Contango common stock to be issued in exchange for each Mid-Con common unit pursuant to the merger agreement was fair, from a financial point of view, to Contango. The full text of the written opinion of Intrepid to the Contango board, dated as of October 25, 2020, is attached as Annex B to this joint consent statement/information statement/prospectus. See “—Opinion of Contango’s Financial Advisor.

The Contango board also considered a variety of risks and other potentially negative factors concerning the merger agreement and the transactions contemplated thereby, including the merger. These factors included:

 

   

the possibility that the merger may not be completed or that completion may be unduly delayed for reasons beyond the control of Contango or Mid-Con;

 

   

that the exchange ratio in the merger agreement provides for a fixed number of shares of Contango common stock, and, as such, the possibility that Contango shareholders could be adversely affected in the event that the market price of Contango common stock increases relative to the market price of Mid-Con common units between the date of the merger agreement and the closing of the merger;

 

   

that there are risks inherent in integrating the operations of Mid-Con into Contango, including that the expected synergies may not be realized, and that successful integration will require the dedication of significant management resources, which will temporarily detract attention from the day-to-day businesses of the combined company;

 

   

that the merger agreement provides that, in certain circumstances, Contango could be required to pay a termination fee of up to $1.5 million to Mid-Con and expense reimbursement of up to $1.5 million;

 

   

that the restrictions on the conduct of Contango’s business prior to the consummation of the merger, although believed to be reasonable and not unduly burdensome, may delay or prevent Contango from

 

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undertaking business opportunities that may arise or other actions it would otherwise take with respect to the operations of Contango pending consummation of the merger;

 

   

that the merger agreement restricts Contango’s ability to entertain other acquisition proposals unless certain conditions are satisfied;

 

   

the substantial costs to be incurred in connection with the merger, including the costs of integrating the businesses of Contango and Mid-Con and the transaction costs to be incurred in connection with the merger;

 

   

the possibility that the $1.5 million termination fee and $1.5 million of expense reimbursement that Mid-Con would be required to pay under the merger agreement upon termination of the merger agreement under certain circumstances would be insufficient to compensate Contango for its costs incurred in connection with the merger agreement; and

 

   

other risks of the type and nature described under the “Risk Factors.”

This discussion of the information and factors considered by the Contango board in reaching its conclusion and recommendations includes all of the material factors considered by the Contango board but is not intended to be exhaustive and is not provided in any specific order or ranking. In view of the wide variety of factors considered by the Contango board in evaluating the merger agreement and the transactions contemplated thereby, including the merger, and the complexity of these matters, the Contango board did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weight to those factors. In addition, different members of the Contango board may have given different weight to different factors. The Contango board did not reach any specific conclusion with respect to any of the factors considered and instead conducted an overall analysis of such factors and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the merger agreement and the issuance of Contango common stock pursuant to the merger agreement.

It should be noted that this explanation of the reasoning of the Contango board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”

Recommendation of the Mid-Con Board and Reasons for the Merger

Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties

The unanimous approval of the merger agreement and the transactions contemplated thereby, including the merger, by the members of the Mid-Con conflicts committee constitutes “Special Approval” under the Mid-Con LPA. Under Section 7.09 of the Mid-Con LPA, whenever a potential conflict of interest exists or arises between Mid-Con GP or any of its affiliates, on the one hand, and Mid-Con, any partner of Mid-Con or any person with an interest in partnership interests of Mid-Con, on the other hand, any resolution, course of action or transaction will be will be deemed to have been in good faith and to not constitute a breach of the Mid-Con LPA or of any duty stated or implied by law, in equity or otherwise, if the resolution or course of action is approved by a majority of the members of the Mid-Con conflicts committee (“Special Approval”).

Under Section 7.10(b) of the Mid-Con LPA, any action taken or omitted to be taken by Mid-Con GP in reliance upon the advice or opinion of an investment banker, among others, as to matters reasonably believed to be in such person’s professional or expert competence shall be conclusively presumed to have been taken or omitted to be taken in good faith and in accordance with such opinion.

Approval of the Mid-Con Conflicts Committee and the Mid-Con Board

The Mid-Con conflicts committee consists of three independent directors of the Mid-Con board: Bob Boulware, Fred Reynolds and Caperton White. The Mid-Con board authorized the Mid-Con conflicts committee to (i) review and evaluate any potential conflicts arising in connection with the merger and any related agreements, (ii) consider, explore, review, analyze, and evaluate the terms and conditions of the merger and any

 

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related agreements, (iii) negotiate the terms and conditions of the merger and any related agreements, (iv) determine whether the merger and any related agreements are in, or not opposed to, the best interests of the merger and the unaffiliated public unitholders, and (v) determine whether or not to approve, and whether or not to recommend that the Mid-Con board approve, the merger and any related agreements, with any such approval and related recommendation by the Mid-Con conflicts committee constituting “Special Approval” as provided by Section 7.9 of the Mid-Con LPA.

The Mid-Con conflicts committee retained Pillsbury Winthrop Shaw Pittman, LLP as its legal counsel and Petrie Partners as its independent financial advisor. The Mid-Con conflicts committee believed that Petrie Partners was independent based on the lack of material business relationships between Petrie Partners and Mid-Con, Contango or their affiliates. The Mid-Con conflicts committee oversaw the performance of financial and legal due diligence by its advisors, conducted an extensive review and evaluation of the potential transaction, including consideration whether to withhold Special Approval and to maintain the status quo, and conducted negotiations with Contango and its representatives with respect to the merger agreement and other related agreements.

The Mid-Con conflicts committee, on October 25, 2020, by unanimous vote, (i) determined that the merger agreement and the merger are in the best interests of Mid-Con and the Mid-Con unaffiliated public unitholders, (ii) approved the merger and the execution, delivery and performance by Mid-Con of the merger agreement (such approval constituting Special Approval as defined in the Mid-Con LPA) and (iii) recommended that the Mid-Con board approve the merger agreement and the merger.

Upon receipt of such recommendation, the Mid-Con board, by unanimous vote on October 25, 2020, determined (i) that the merger and the related agreements, including the merger agreement and the Mid-Con voting and support agreements, are in the best interests of Mid-Con and the Mid-Con unitholders, including the Mid-Con unaffiliated public unitholders, (ii) to approve the merger and the related agreements, including the merger agreement and the Mid-Con voting and support agreements and (iii) to submit the merger agreement to a vote of the Mid-Con unitholders, and authorized the Mid-Con unitholders to act by written consent to approve the merger pursuant to the Mid-Con LPA.

Reasons for the Mid-Con Conflicts Committee’s Recommendation

The Mid-Con conflicts committee consulted with its financial and legal advisors and considered both positive and negative factors in making its determination and approvals, and the related recommendation to the Mid-Con board.

The Mid-Con conflicts committee considered the following factors to be generally positive or favorable in making its determination and approvals, and the related recommendation to the Mid-Con board:

 

   

The exchange ratio of 1.7500 represents a premium to the Mid-Con unitholders of 5% based on a 15-day volume weighted average price using closing prices ending on October 23, 2020, the last trading day prior to the date on which the Mid-Con conflicts committee made its determination regarding the merger agreement.

 

   

The exchange ratio, with an implied value of $2.9925 based on the closing price of Contango common stock on October 23, 2020 (the last trading day before the announcement of the merger agreement) represents a significant improvement over Contango’s initial proposal on July 14, 2020 of 1.6422 shares of Contango common stock for each Mid-Con common unit.

 

   

The Mid-Con conflicts committee also believed that the exchange ratio of 1.7500 shares of Contango common stock for each Mid-Con common unit was the highest exchange ratio that Contango would be willing to pay the Mid-Con unitholders.

 

   

The Mid-Con conflicts committee believed that, absent a significant and sustained improvement in macroeconomic, industry and business conditions facing Mid-Con and its customers, it would be

 

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difficult to raise additional capital to finance further development or refinance Mid-Con’s credit facility, which is scheduled to mature on May 1, 2021.

 

   

The Mid-Con conflicts committee’s beliefs and expectations that Contango’s corporate structure and its size following the merger provide a number of benefits relative to Mid-Con’s MLP structure, including:

 

   

market sentiment currently favors corporate structures over MLP structures;

 

   

corporations attract a broader set of investors as compared to MLPs because certain types of institutional investors face prohibitions or limitations on investing in entities other than corporations;

 

   

implications of the COVID-19 pandemic and other recent macroeconomic events for the MLP model;

 

   

implications of the oil price war among the OPEC+ and the future structure of Mid-Continent, Big Horn and Powder River Basins oil and natural gas industry;

 

   

equity financing and access to debt markets have become more restrictive to MLPs, which could lead to diminished ability to fund growth expenditures;

 

   

Contango common stock will provide greater trading liquidity than Mid-Con common units because of the larger average daily trading volume of Contango common stock as a result of the broader investor base and larger public float; and

 

   

Mid-Con unitholders will receive equity ownership in a corporate entity with traditional fiduciary duties owed to shareholders (which are more robust than those under the Mid-Con LPA) and a simplified capital structure relative to an MLP.

 

   

The public listing of Contango common stock will allow the Mid-Con public unitholders to make their own decision whether to sell the Contango common stock they receive in the merger for cash or to retain the Contango common stock they receive and participate in the equity value of Contango, including the potential future growth and synergies resulting from the merger.

 

   

The Mid-Con conflicts committee believed that the merger will provide greater financial flexibility for both Mid-Con and Contango, reduce the cost of capital and optimize cash flows.

 

   

The projected tax benefits to Contango resulting from Contango’s ability to claim additional depreciation and amortization deductions on a stepped-up basis in the assets underlying the Mid-Con common units it acquires in the merger will indirectly benefit the Mid-Con unitholders as Contango shareholders following the consummation of the merger.

 

   

The Mid-Con public unitholders’ aggregate tax obligations resulting from the merger are expected to be mitigated to some extent because a large proportion of the unitholders have a relatively high adjusted tax basis in their Mid-Con common units and many of the unitholders have suspended passive losses available to offset a portion of the taxable gain, including ordinary income, that will be recognized in the merger.

 

   

The financial presentation, dated October 24, 2020, and opinion of Petrie Partners, dated October 25, 2020, to the Mid-Con conflicts committee that, as of that date and based upon and subject to the various assumptions, procedures, factors, qualifications, and limitations and other matters set forth in Petrie Partners’ opinion, the merger consideration in the merger was fair, from a financial point of view, to the Mid-Con unaffiliated public unitholders.

 

   

The terms of the merger agreement, principally:

 

   

each Mid-Con unitholder will receive 1.7500 shares of Contango common stock per outstanding Mid-Con common unit;

 

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Contango’s obligation to pay a termination fee and reimburse certain Mid-Con expenses in connection with the termination of the merger agreement in certain circumstances;

 

   

the operating covenants of Contango, which provide protection to the Mid-Con unitholders prior to closing by restricting Contango’s ability to take certain actions prior to the closing of the merger that could reduce the value of the Contango common stock received by the Mid-Con unitholders in the merger; and

 

   

the limited conditions and exceptions to the closing conditions in the merger agreement.

 

   

The probability that Mid-Con and Contango will be able to consummate the merger is significantly increased by the Mid-Con voting agreements, requiring that the Mid-Con voting agreement unitholders provide a written consent in favor of the merger.

 

   

The probability that Contango and Mid-Con will be able to consummate the merger is significantly increased by the fact that (i) pursuant to the Mid-Con voting agreements, the Mid-Con voting agreement unitholders, which beneficially owned 8,107,900 Mid-Con common units in the aggregate on October 25, 2020, irrevocably agreed to deliver the Mid-Con written consent approving the Mid-Con merger proposal within two business days after the effectiveness of the registration statement and (ii) pursuant to Voting and Support Agreements by and among Mid-Con, Contango and Contango shareholders, which beneficially owned 81,753,700 shares of Contango common stock in the aggregate on October 25, 2020, irrevocably agreed to vote in favor of the Contango share issuance.

The Mid-Con conflicts committee considered the following factors to be generally negative or unfavorable in arriving at its determinations and approvals, and the related recommendation to the Mid-Con board:

 

   

The exchange ratio is fixed, and therefore the value of the consideration payable to Mid-Con unitholders based on the ratio will decrease in the event that the market price of Contango common stock decreases relative to any change in the market price of Mid-Con common units prior to the closing of the merger.

 

   

The Mid-Con common units have, in the past, traded at levels that exceed the amount implied by the exchange ratio of $2.9925 based on the closing price of Contango common stock on October 23, 2020. As of November 19, 2020, the 52-week high for the Mid-Con common units was $8.80 on January 7, 2020.

 

   

Contango does not currently pay quarterly dividends on its common stock.

 

   

The merger will be a taxable transaction to Mid-Con unitholders for U.S. federal and state income tax purposes. Depending on each Mid-Con unitholder’s individual tax situation, the unitholder will recognize taxable gain or loss upon the exchange of the Mid-Con common units for Contango common stock in the merger. Additionally, a portion of any such taxable gain or loss will be separately computed and any gain may be taxed as ordinary income.

 

   

Following the merger, the income of the resulting combined entity will be subject to double taxation (at the combined company and shareholder levels) for U.S. federal income tax purposes because Contango is a corporation, while the income of Mid-Con is currently subject to only one level of tax (at the unitholder level) because Mid-Con is a partnership for federal income tax purposes.

 

   

The Mid-Con conflicts committee was not authorized to, and did not, conduct an auction process or other solicitation of interest from third parties for the acquisition of Mid-Con. Because Contango has significant commercial arrangements with Mid-Con, it was considered unrealistic to expect or pursue an unsolicited third-party acquisition proposal or offer for the assets or control of Mid-Con, and unlikely that the Mid-Con conflicts committee could conduct a meaningful auction for the acquisition of the assets or control of Mid-Con.

 

   

The merger agreement does not include a “majority of the minority” approval condition, and therefore approval of the merger does not require the affirmative vote of the Mid-Con unaffiliated public unitholders.

 

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The combined company may be unable to realize fully the potential benefits sought in the merger.

 

   

The merger may not be completed in a timely manner, or at all, which could result in significant costs and disruption to Mid-Con’s normal business and a decline in the trading price of Mid-Con common units.

 

   

Certain terms of the merger agreement, principally the provisions obligating Mid-Con to reimburse certain Contango expenses in connection with the termination of the merger agreement as a result of a material uncured breach by Mid-Con or Mid-Con GP under the merger agreement and the operating covenants of Mid-Con restricting Mid-Con’s ability to take certain actions prior to the closing of the merger.

 

   

The Mid-Con unaffiliated public unitholders are not entitled to dissenters’ or appraisal rights under the merger agreement, the Mid-Con LPA or Delaware law.

 

   

Mid-Con unitholders will be forgoing the potential benefits that might be realized from continued operation of Mid-Con on a standalone basis.

 

   

Litigation may occur in connection with the merger and such litigation may increase costs and result in a diversion of management focus.

 

   

Some of the executive officers and directors of Mid-Con have interests in the merger that are different from, or in addition to, the interests of the Mid-Con unaffiliated public unitholders generally.

In addition to the factors described above, the Mid-Con conflicts committee considered the following procedural factors in making its determination that the merger agreement and the transactions contemplated thereby are in the best interests of Mid-Con and the Mid-Con unaffiliated public unitholders:

 

   

The terms and conditions of the merger were determined through arm’s-length negotiations between Contango and the Mid-Con conflicts committee and their respective representatives and advisors.

 

   

Each of the members of the Mid-Con conflicts committee satisfies the requirements for serving on the Mid-Con conflicts committee as required under the Mid-Con LPA, including the requirement that all members of the Mid-Con conflicts committee be independent directors.

 

   

The Mid-Con conflicts committee retained independent financial advisors and legal advisors with reputations, knowledge and experience with respect to public merger and acquisition transactions and the oil and gas industry, as well as familiarity with Mid-Con and its business.

 

   

The members of the Mid-Con conflicts committee are familiar with, and understand, the businesses, assets, liabilities, results of operations, financial condition and competitive positions and prospects of Mid-Con.

 

   

The compensation of the members of the Mid-Con conflicts committee is in no way contingent on their approving the merger agreement or the merger.

 

   

Other than with respect to the Mid-Con phantom units held by the directors, which will become fully vested and will be automatically converted into the right to receive a number of shares of Contango common stock equal to the product of (i) the number of Mid-Con common units subject to such award as of immediately prior to the effective time and (ii) the exchange ratio, with cash paid (without interest, rounded to the nearest cent) in lieu of the issuance of fractional shares, if any, the members of the Mid-Con conflicts committee will not personally benefit from the consummation of the merger in a manner different from the Mid-Con unitholders.

 

   

The members of the Mid-Con conflicts committee have not been requested to serve on the Contango board after the merger.

 

   

The Mid-Con conflicts committee had no obligation to recommend any transaction, including the proposal put forth by Contango.

 

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After taking into account all of the factors set forth above, as well as others, the Mid-Con conflicts committee concluded that the potential benefits of the merger outweighed any negative or unfavorable considerations and determined that the merger agreement and the transactions contemplated thereby are in the best interests of Mid-Con and the Mid-Con unaffiliated public unitholders.

The foregoing discussion is not intended to be exhaustive but is intended to address the material information and principal factors considered by the Mid-Con conflicts committee in considering the merger. In view of the number and variety of factors and the amount of information considered, the Mid-Con conflicts committee did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, the Mid-Con conflicts committee did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of the Mid-Con conflicts committee may have given different weights to different factors. The Mid-Con conflicts committee made its recommendation based on the totality of information presented to, and the investigation conducted by, the Mid-Con conflicts committee. It should be noted that certain statements and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.

Certain Contango and Mid-Con Unaudited Prospective Financial and Operating Information

Contango and Mid-Con do not as a matter of course make public long-term forecasts or internal projections as to future performance, revenues, production, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with its evaluation of the merger, Contango’s management and Mid-Con’s operator, Contango Resources, Inc. (“Resources”), prepared certain unaudited internal financial forecasts with respect to Contango and Mid-Con, which were provided to the Contango board and Mid-Con conflicts committee, as well as Contango’s and Mid-Con’s respective financial advisors, in connection with the proposed merger (collectively, the “Contango and Mid-Con projections”). Certain of the Contango and Mid-Con projections were also provided to Contango’s and Mid-Con’s financial advisors for their use and reliance in connection with the financial analyses that Intrepid Partners and Petrie Partners performed in connection with their respective opinions described in “—Opinion of Contango’s Financial Advisor” and “—Opinion of Mid-Con Conflicts Committee’s Financial Advisor.” The inclusion of this information should not be regarded as an indication that any of Contango, Mid-Con, their respective advisors, or other representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such summary projections set forth below should not be relied on as such.

This information was prepared solely for internal use and is subjective in many respects. While presented with numeric specificity, the unaudited prospective financial and operating information reflects numerous estimates and assumptions that are inherently uncertain and may be beyond the control of Contango’s management and Resources’, including, among others, Contango’s and Mid-Con’s future results, oil and gas industry activity, commodity prices, demand for crude oil and natural gas, the availability of financing to fund the exploration and development costs associated with the respective projected drilling programs, general economic and regulatory conditions, and other matters described in “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.” The unaudited prospective financial and operating information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Contango and Mid-Con can give no assurance that the unaudited prospective financial and operating information and the underlying estimates and assumptions will be realized. In addition, since the unaudited prospective financial and operating information covers multiple years, such information by its nature becomes less predictive with each successive year. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the unaudited prospective financial information to be inaccurate include, but are not limited to, risks and uncertainties relating to its business,

 

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industry performance, the regulatory environment, general business and economic conditions, and other matters described in “Risk Factors.” Please also see “Cautionary Statement Regarding Forward-Looking Statements,” “Where You Can Find More Information” and the Annexes attached hereto.

The unaudited prospective financial and operating information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with GAAP, published guidelines of the SEC, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Contango’s and Mid-Con’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the unaudited prospective financial and operating information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The report of the independent registered public accounting firm to Contango contained in its Annual Report on Form 10-K for the year ended December 31, 2019, which is incorporated by reference into this joint consent statement/information statement/prospectus, relates to historical financial information of Contango, and such report does not extend to the projections included below and should not be read to do so. The report of the independent registered public accounting firm to Mid-Con contained in its Annual Report on Form 10-K for the year ended December 31, 2019, recast to give effect to the 2020 reverse split, attached hereto as Annex D relates to historical financial information of Mid-Con, and such report does not extend to the projections included below and should not be read to do so.

Furthermore, the unaudited prospective financial and operating information does not take into account any circumstances or events occurring after the date it was prepared. Contango and Mid-Con can give no assurance that, had the unaudited prospective financial and operating information been prepared either as of the date of this joint consent statement/information statement/prospectus or the date of closing of the merger, similar estimates and assumptions would be used. Except as required by applicable securities laws, Contango and Mid-Con do not intend to, and disclaim any obligation to, make publicly available any update or other revision to the unaudited prospective financial and operating information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, including with respect to the accounting treatment of the merger under GAAP, or to reflect changes in general economic or industry conditions. The unaudited prospective financial and operating information does not take into account all the possible financial and other effects on Contango or Mid-Con of the merger, the effect on Contango or Mid-Con of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions which would likely have been taken if the merger agreement had not been executed, but which were instead altered, accelerated, postponed, or not taken in anticipation of the merger. Further, the unaudited prospective financial and operating information does not take into account the effect on Contango or Mid-Con of any possible failure of the merger to occur. None of Contango, Mid-Con or their respective affiliates, officers, directors, advisors or other representatives has made, makes or is authorized in the future to make any representation to any Contango shareholder or Mid-Con unitholder or other person regarding Contango’s or Mid-Con’s ultimate performance compared to the information contained in the unaudited prospective financial and operating information or that the forecasted results will be achieved. The inclusion of the unaudited prospective financial and operating information herein should not be deemed an admission or representation by Contango, Mid-Con, their respective advisors or other representatives or any other person that it is viewed as material information of Contango or Mid-Con, particularly in light of the inherent risks and uncertainties associated with such forecasts. The summary of the unaudited prospective financial and operating information included below is being provided solely because it was made available to the Contango board, Mid-Con conflicts committee and Contango’s and Mid-Con’s respective financial advisors in connection with the merger.

In light of the foregoing, as well as the uncertainties inherent in any forecasted information, Contango shareholders and Mid-Con unitholders are cautioned not to place undue reliance on such information, and Contango and Mid-Con urge all Contango shareholders and Mid-Con unitholders to review Contango’s most recent SEC filings for a description of Contango’s reported financial results and Mid-Con’s most recent SEC filings for a description of Mid-Con’s reported financial results.

 

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Contango Management Projections for Contango

In preparing the prospective financial and operating information described below, the management team of Contango and Resources used the following oil and natural gas price assumptions, which are based on New York Mercantile Exchange (“NYMEX”) strip pricing available on August 4, 2020:

 

    Q1 2021E     Q2 2021E     Q3 2021E     Q4 2021E     Q1 2022E     Q2 2022E     Q3 2022E     Q4 2022E  

WTI Oil ($/bbl)

  $ 42.98     $ 43.69     $ 44.18     $ 44.54     $ 44.81     $ 45.07     $ 45.29     $ 45.57  

Henry Hub Gas ($/Mcf)

  $ 3.00     $ 2.63     $ 2.68     $ 2.76     $ 2.88     $ 2.36     $ 2.42     $ 2.54  

The following table sets forth certain summarized prospective financial and operating information regarding Contango on a standalone basis for each fiscal quarter for the years 2021 and 2022, based on the price assumptions indicated above, which information was prepared by Contango management and Resources and provided by Contango management and Resources to Contango’s financial advisor, Mid-Con’s conflicts committee and Mid-Con’s financial advisor for their use and reliance in connection with the financial analysis that they performed in connection with their respective opinions described in “The Merger—Opinion of Contangos Financial Advisor” and “The Merger—Opinion of the Mid-Con Conflict Committees Financial Advisor. The following unaudited prospective financial and operating information should not be regarded as an indication that Contango or Resources considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such information does not take into account any circumstances or events occurring after the date it was prepared, including, among other things, Contangos anticipated or actual capital allocation relating to the Contango assets post-closing of the merger.

 

    Unaudited Contango Financial and Operating Forecast
Provided by Contango Management
 
($ in millions)   Q1 2021E     Q2 2021E     Q3 2021E     Q4 2021E     Q1 2022E     Q2 2022E     Q3 2022E     Q4 2022E  

Production (Mboe/d)

    16       15.5       15.3       14.9       14.4       13.5       11.6       11.2  

Total Revenue

  $ 32.9   $ 31.6     $ 32.5     $ 32.0     $ 30.8     $ 27.2     $ 24.6     $ 24.6  

EBITDAX (1)

  $ 10.4   $ 10.3     $ 10.9     $ 10.3     $ 7.8     $ 5.6     $ 7.2     $ 7.6  

Capital Expenditures

  $ 5.2     $ 12.4     $ 5.6     $ 1.4     $ 0.8     $ 4.4     $ 6.2     $ 1.9  

Levered Free Cash Flow (2)

  $ 4.6     ($ 2.7   $ 4.6     $ 8.2     $ 6.5     $ 0.7     $ 0.5     $ 5.2  

 

(1)

EBITDAX is defined as earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense, stock-based compensation, non-cash derivative amortization, geological and geophysical and seismic expenses, accretion of discount on asset retirement obligations and other non-cash items. EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

(2)

Levered Free Cash Flow is defined as EBITDAX, less cash interest expense and capital expenditures. Levered Free Cash Flow is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

Contango Management Projections for Mid-Con

Contango management and Resources also provided to Contango’s financial advisor, Mid-Con’s conflicts committee and Mid-Con’s financial advisor certain unaudited prospective financial and operating information with respect to Mid-Con on a standalone basis, which was generally derived from information provided by Resources, for its use and reliance in connection with the financial analysis that it performed in connection with the financial analysis that they performed in connection with their respective opinions described in “The Merger—Opinion of Contango’s Financial Advisor” and “The Merger—Opinion of the Mid-Con Conflict Committee’s Financial Advisor.” The following table sets forth a summary of this prospective financial and

 

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operating information regarding Mid-Con for each fiscal quarter for the years 2021 and 2022 as prepared by Contango management and Resources based on the price assumptions indicated above. The following unaudited prospective financial and operating information should not be regarded as an indication that Contango or Resources considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such information does not take into account any circumstances or events occurring after the date it was prepared, including, among other things, Contango’s anticipated or actual capital allocation relating to the Mid-Con assets post-closing of the merger.

 

    Unaudited Mid-Con Financial and Operating Forecast
Provided by Contango Management
 
($ in millions)   Q1 2021E     Q2 2021E     Q3 2021E     Q4 2021E     Q1 2022E     Q2 2022E     Q3 2022E     Q4 2022E  

Production (Mboe/d)

    2.9       2.9       2.9       3.0       2.9       2.7       2.6       2.6  

Total Revenue

  $ 10.2     $ 10.4     $ 11.0     $ 11.3     $ 10.7     $ 10.4     $ 10.2     $ 10.1  

EBITDAX (1)

  $ 4.2     $ 4.2     $ 4.6     $ 4.8     $ 4.2     $ 3.9     $ 3.7     $ 3.7  

Capital Expenditures

  $ 1.6     $ 1.0     $ 1.3     $ 1.3     $ 1.3     $ 0.0     $ 0.0     $ 0.0  

Levered Free Cash Flow (2)

  $ 1.8     $ 2.4     $ 2.6     $ 2.8     $ 2.3     $ 3.2     $ 3.1     $ 3.1  

 

(1)

EBITDAX is defined as earnings before interest, income taxes, depreciation, depletion, amortization, and exploration expense, stock-based compensation, non-cash derivative amortization, geological and geophysical and seismic expenses, accretion of discount on asset retirement obligations and other non-cash items. EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

(2)

Levered Free Cash Flow is defined as EBITDAX, less cash interest expense and capital expenditures. Levered Free Cash Flow is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

Contango Management and Resources Projections for Expected Synergies and Cost Savings

Contango management and Resources provided to Contango’s financial advisor, the Mid-Con conflicts committee and Mid-Con’s financial advisor certain estimates of the amounts and timing of expected synergies anticipated by Contango management and Resources to result from the merger, which included annualized general and administrative expense cost savings of approximately $1.9 million (collectively, the “Contango expected synergies”).

Opinion of Contango’s Financial Advisor

The Contango board engaged Intrepid Partners, LLC (“Intrepid”) to act as its financial advisor. As part of that engagement, the Contango board requested that Intrepid evaluate the fairness, from a financial point of view, of the exchange ratio in the merger to Contango. On October 25, 2020, Intrepid delivered to the Contango board its oral opinion, confirmed by its delivery of a written opinion dated as of the same date, that, as of the date thereof, and based upon and subject to the assumptions, procedures, factors, qualifications, limitations and other matters set forth in Intrepid’s written opinion, the exchange ratio in the merger is fair, from a financial point of view, to Contango.

The full text of Intrepid’s written opinion, dated October 25, 2020, which sets forth, among other things, certain of the assumptions made, procedures followed, matters considered, qualifications and limitations with respect to the review undertaken by Intrepid, is attached as Annex B to this joint consent statement/information statement/prospectus and is incorporated by reference into this section.

Intrepid provided its opinion for the information and benefit of the Contango board (in its capacity as such) in connection with its evaluation of the merger. The opinion does not address Contango’s underlying

 

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business decision to enter into the merger or the relative merits of the merger as compared with any other strategic alternative that may be available to Contango. The opinion is not intended to be and does not constitute a recommendation to any shareholder of Contango (“Contango shareholder”) as to how such Contango shareholder should act or vote with respect to the merger or any other matter. In addition, the opinion is not rendered to or for the benefit of, and does not confer rights or remedies upon, any person other than the Contango board (including any equity holders, creditors or other constituencies of Contango). This summary is qualified in its entirety by reference to the full text of the opinion.

Intrepid’s opinion was necessarily based upon business, market, economic, regulatory and other conditions as they exist on, and were evaluated as of October 25, 2020. Intrepid assumes no responsibility for updating, revising or reaffirming its opinion based on developments, circumstances or events occurring, or information made available to it, after October 25, 2020. Intrepid’s opinion did not express any opinion as to equity securities or debt securities of Contango or Mid-Con and the price, trading range or volume at which any securities will trade at any time.

In connection with rendering its opinion, Intrepid, among other things:

 

   

reviewed a draft of the merger agreement (draft dated October 25, 2020);

 

   

reviewed certain publicly available information relating to Mid-Con and Contango that Intrepid deemed relevant, including each of Mid-Con’s and Contango’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Quarterly Report on Form 10-Q for the three months ended June 30, 2020 and certain Current Reports on Form 8-K, in each case as filed with or furnished to the SEC;

 

   

reviewed certain non-public historical and projected financial, reserves, liquidity and operating data relating to both Mid-Con and Contango as prepared and furnished to Intrepid respectively by the management of Mid-Con and Contango, including financial projections, covenants, metrics and related assumptions relating to Mid-Con and Contango;

 

   

reviewed certain recent corporate announcements made by Mid-Con including, but not limited to, those regarding (a) Contango’s management services agreement with Mid-Con announced June 22, 2020, (b) Mid-Con’s recapitalization transactions announced June 5, 2020, and (c) Mid-Con’s one-for-twenty reverse unit split effective at the close of business on April 9, 2020;

 

   

discussed the strategic rationale for, and potential benefits of, the merger with management of Contango and reviewed Contango management’s estimated cost-synergies resulting from the merger;

 

   

discussed past and current operations and operational projections of each of Mid-Con and Contango with management of Mid-Con and Contango, respectively (including their views on the risks and uncertainties in achieving the projections set forth in the forecasts provided);

 

   

reviewed and analyzed pro forma impacts of the merger;

 

   

performed discounted cash flow analyses based on forecasts and other data provided by management of Mid-Con and Contango;

 

   

reviewed and analyzed publicly available historical and current financial information, debt trading data, unit and stock price data and broker research estimates with respect to certain public companies with operations and assets that we considered comparable to each of Mid-Con and Contango;

 

   

reviewed the financial metrics of certain historical transactions that Intrepid deemed relevant and compared such financial metrics to those implied by the merger; and

 

   

conducted such other studies and investigations, performed such other analyses and examinations, reviewed such other information and considered such other factors that Intrepid deemed appropriate for purposes of providing the opinion expressed herein.

 

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For purposes of its analysis and opinion, Intrepid assumed and relied upon the accuracy and completeness of all of the foregoing information and any other financial, accounting, legal, operational, tax, reserves and other information and data provided to, discussed with or reviewed by it, and Intrepid has not assumed any responsibility for independent verification of the accuracy or completeness of any such information. Intrepid further relied upon the assurances of management of Contango and Mid-Con that they are not aware of any facts or circumstances that would make such information inaccurate, incomplete or misleading. With respect to financial and tax forecasts, projections and business plans of Contango and Mid-Con provided to it, including estimated cost-synergies resulting from the merger, Intrepid relied, with the consent of the Contango board, upon the assurances of management of Contango and Mid-Con that such data had been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of management of Contango and Mid-Con as to the future performance of Contango and Mid-Con, under the assumptions reflected therein. Intrepid expresses no view as to such financial and tax forecasts, including without limitation any estimated cost-synergies, or any judgments, estimates or assumptions on which they were based. Intrepid relied upon, without independent verification, the assessment of management of Contango and Mid-Con as to the potential impact on Contango and Mid-Con, respectively, of the effects of the COVID-19 pandemic and related events on Contango’s and Mid-Con’s business and operations, which, if different than assumed, could have a material impact on Intrepid’s analyses or its opinion. As the Contango board was aware, the oil and gas industry is experiencing unusual volatility and Intrepid expressed no opinion or view as to any potential effects of such volatility on Contango, Mid-Con or the merger.

Intrepid relied, with the consent of the Contango board, upon the assessments of Contango and Mid-Con management as to (i) the potential impact on Contango and Mid-Con of market and other trends and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the oil and gas industry or U.S. markets, (ii) the potential impact on the operations, results and prospects of Contango and Mid-Con of the merger, and (iii) existing and future contracts and relationships, agreements and arrangements with related and third parties that are necessary or desirable for the operation of Contango and Mid-Con. Intrepid did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Contango and Mid-Con is or may be a party or is or may be subject. Intrepid also assumed that there were no material changes in the liabilities, financial condition, results of operations, business or prospects of or relating to Contango and Mid-Con since the date of the latest information relating to Contango and Mid-Con, as applicable, made available to it. In arriving at its opinion, Intrepid did not conduct a physical inspection of the properties and facilities of Contango and Mid-Con and did not make or obtain any evaluations or appraisals of their respective assets or liabilities, nor has Intrepid been furnished with any such evaluations or appraisals.

In rendering its opinion, Intrepid assumed (in all respects material to its analysis and with the consent of the Contango board) that the representations and warranties of each party contained in the merger agreement are true and correct in all respects, and that each party will perform in all respects all of the covenants, undertakings and agreements required to be performed by it under the merger agreement, and the merger will be consummated on the terms described in the merger agreement, without any waiver or modification of any material terms or conditions contained therein. Intrepid assumed that the final executed and delivered versions of all documents reviewed by it in draft form will conform in all material respects to the most recent drafts reviewed by it. Intrepid assumed that all governmental, regulatory or other consents, approvals or releases, and any financing or refinancing contemplated to be undertaken by the parties in connection with the merger, including the contemplated private placement of Contango common stock, will be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on the parties to the merger or materially reduce the benefits of the merger to Contango. Intrepid assumed that the merger and the business of each of Contango, Mid-Con and the other parties to the merger will be and has been conducted in a manner that complies with all applicable federal, state and local statutes, rules and regulations. Intrepid assumed that Contango and the Contango board have relied on the advice of their counsel, independent accountants and other advisors (other than Intrepid) as to all legal, financial reporting, tax, accounting, securities and regulatory matters with respect to the merger.

 

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Intrepid was not asked to pass upon, and expressed no opinion with respect to, any matter other than whether the exchange ratio in the merger is fair, from a financial point of view, to Contango. Intrepid was not asked to, nor does it express any view on, and its opinion does not address, any other terms, conditions, aspects or implications of the merger or any agreements, arrangements or understandings entered into in connection therewith or otherwise, including the structure, form or timing of the merger and the covenants and undertakings of Contango and Mid-Con. Intrepid’s opinion does not address any financing transactions associated with the merger, including the contemplated private placement of Contango common stock. In addition, Intrepid does not express any view regarding the relative merits of the merger as compared to any other transaction or business strategy in which Contango might engage or the merits of the underlying decision by the Contango board to engage in the merger and enter into and perform the merger agreement. Intrepid expresses no view or opinion as to the fairness of the merger to the creditors, bondholders or other constituencies of Contango or its subsidiaries, or the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the merger or class of such persons, relative to the exchange ratio or otherwise. Further, the Contango board did not authorize Intrepid to solicit, and Intrepid did not solicit, any indications of interest from any third party with respect to alternative transactions.

Intrepid’s opinion does not address accounting, legal, actuarial, regulatory or tax matters. Intrepid is not a legal, tax, commercial or bankruptcy advisor. Intrepid’s opinion does not constitute a solvency opinion and does not address the solvency or financing condition of Contango or any of the potential parties to the merger. Intrepid’s opinion does not address whether Contango has sufficient cash available or other sources of funds to enable it to consummate any distributions. Intrepid’s opinion does not constitute a tax opinion. Intrepid’s opinion cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. Each person should seek legal, regulatory, accounting and tax advice based on his, her or its particular circumstances from independent advisors regarding the evaluation and impact of any transactions or matters described herein.

Intrepid does not express any opinion as to equity securities or debt securities of Contango or Mid-Con and the price, trading range or volume at which any securities will trade at any time, including following announcement of the merger.

In arriving at its opinion, Intrepid did not attribute any particular weight to any particular analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Several analytical methodologies were employed by Intrepid in its analyses, and no one single method of analysis should be regarded as critical to the overall conclusion reached by Intrepid. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Accordingly, Intrepid believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and all factors in their entirety, could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Intrepid, therefore, is based on the application of Intrepid’s own experience and judgment to all analyses and factors considered by it, taken as a whole. Intrepid’s opinion was approved by the fairness opinion committee of Intrepid.

Summary of Material Financial Analyses

Set forth below is a summary of the material financial analyses performed by Intrepid and reviewed with the Contango board on October 25, 2020, in connection with rendering Intrepid’s opinion to the Contango board.

Financial data for each of Mid-Con and Contango utilized in the financial analyses described below were based on, among other things, financial projections of Mid-Con and Contango, each as prepared on a standalone basis by their respective management. Additionally, financial data for each of Mid-Con and Contango utilized the following high and low commodity price assumptions for the second half 2020 to 2029 forecast period, which were based on NYMEX strip pricing as of August 4, 2020: Henry Hub natural gas prices of $2.30—$2.90 per mmbtu and WTI oil prices of $41.83—$52.33 per bbl.

 

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The following is a summary of the material financial analyses performed by Intrepid with respect to each of Mid-Con and Contango in preparing Intrepid’s opinion:

Mid-Con:

 

   

comparable company analysis;

 

   

net asset value analysis;

 

   

precedent transaction analysis; and

 

   

precedent premiums paid analysis.

Contango:

 

   

comparable company analysis; and

 

   

net asset value analysis.

Each of these methodologies was used to generate reference enterprise and equity value ranges, as applicable, for each of Mid-Con and Contango. The enterprise value ranges for each company were adjusted for appropriate on-balance sheet and off-balance sheet assets and liabilities to arrive at implied equity value ranges (in aggregate dollars) for each company, including, as applicable without limitation, the estimated value impact of each company’s current commodity hedging portfolio; unconsolidated equity investments; net debt; and future estimated general and administrative expenses. The implied equity value ranges for each of Mid-Con and Contango were then divided by diluted common units outstanding for Mid-Con and diluted shares of common stock outstanding for Contango, consisting of common units for Mid-Con and share of common stock for Contango and incorporating for each the effect of outstanding dilutive securities, as appropriate, as provided by Mid-Con and Contango, respectively, in order to derive implied equity value ranges per Mid-Con common unit and share of Contango common stock.

Intrepid calculated the implied exchange ratio ranges reflected in the financial analyses described above by comparing (i) the low end of the valuation range for Contango common stock to the high end of the valuation range for Mid-Con common units and (ii) the high end of the valuation range for Contango common stock to the low end of the valuation range for Mid-Con common units. The resulting implied exchange ratio ranges were then compared with the exchange ratio.

In addition, Intrepid performed certain other reference analyses including a review of the historical exchange ratios of Mid-Con common units and shares of Contango common stock for the period from October 23, 2019 to October 23, 2020.

The following summary does not purport to be a complete description of the financial and comparative analyses performed by Intrepid, nor does the order of analyses described represent relative importance or weight given to those analyses by Intrepid. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. A fairness opinion is thus not susceptible to partial analysis or summary descriptions.

The financial and comparative analyses summarized below include information presented in tabular format. In order to fully understand the analyses performed by Intrepid, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial and comparative analyses performed by Intrepid. Considering the data set forth in the tables below without considering the full narrative description of the analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial and comparative analyses performed by Intrepid. Except as otherwise noted, the following quantitative information is based on market data or conditions as they existed at the time of the delivery of the opinion, and is not necessarily indicative of current market conditions.

 

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Analysis of Mid-Con

Comparable Company Trading Analysis

Intrepid performed a comparable company trading analysis of Mid-Con by reviewing and comparing the market values and trading multiples of the following publicly-traded, small-cap, oil-weighted companies that Intrepid deemed to have certain characteristics similar to those of Mid-Con:

 

   

Berry Corporation

 

   

Bonanza Creek Energy, Inc.

 

   

Earthstone Energy, Inc.

 

   

Northern Oil and Gas, Inc.

 

   

Penn Virginia Corporation

These companies are referred to in this section as the “Mid-Con selected comparable companies.” Intrepid performed the comparable company trading analysis based on data derived from public company filings and disclosures, publicly available disclosures and broker research estimates. Although none of the Mid-Con selected comparable companies are directly comparable to Mid-Con, the companies included were selected because they are small-cap, oil-weighted companies with operations, asset profiles, financial profiles, service profiles, geographic exposure and/or entity structure that, in Intrepid’s experience and professional judgment, for purposes of this analysis, may be considered similar to certain aspects of those of Mid-Con. Accordingly, Intrepid believes that purely quantitative analyses are not, in isolation, determinative in the context of the merger and that qualitative judgments concerning differences between the financial and operating characteristics and prospects of Mid-Con and the Mid-Con selected comparable companies also are relevant.

For each of the Mid-Con selected comparable companies, Intrepid calculated the following trading multiples based on information from public company filings and disclosures, publicly available disclosure statements and broker research estimates, using applicable market data as of October 23, 2020, including:

 

   

Enterprise value / EBITDAX, which is calculated as enterprise value divided by earnings before interest, taxes, depreciation and amortization and exploration expense (“EBITDAX”), as projected by broker research analysts (each company’s definition of EBITDAX may vary);

 

   

Enterprise value / average daily production (2020E, as projected by broker research);

 

   

Enterprise value / proved developed reserves; and

 

   

Enterprise value / proved reserves.

The resulting high, mean, median, and low trading multiples and ratios of the Mid-Con selected comparable companies are set forth below.

 

     High      Mean      Median      Low  

EV/2020E EBITDAX (x)

     4.2x        2.9x        2.7x        2.3x  

EV/2021E EBITDAX (x)

     5.4x        3.6x        3.5x        2.7x  

EV/2020E Daily Production ($/Boe/d)

   $ 43,936      $ 27,086      $ 23,173      $ 18,080  

EV/PD Reserves ($/Boe)

   $ 18.74      $ 11.44      $ 9.83      $ 8.10  

EV/Proved Reserves ($/Boe)

   $ 10.54      $ 5.55      $ 4.78      $ 3.29  

 

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The table below includes relevant multiple reference ranges selected by Intrepid based on the trading multiples of the Mid-Con selected comparable companies set forth above and Intrepid’s professional judgment.

 

Metric

   Reference Range  

EV/2020E EBITDAX (x)

     3.0x to 4.0x  

EV/2021E EBITDAX (x)

     3.5x to 5.0x  

EV/2020E Daily Production ($/Boe/d)

   $ 25,000 to $35,000  

EV/PD Reserves ($/Boe)

   $ 6.50 to $9.00  

EV/Proved Reserves ($/Boe)

   $ 4.50 to $6.00  

Based upon the financial multiples observed in this analysis, Intrepid calculated an implied Mid-Con common unit price range of $0.43 to $2.50 based on the averages of the respective minimum and maximum enterprise values as derived by each of the methodologies, minus Mid-Con’s net debt, then divided by Mid-Con’s fully diluted common units outstanding.

Net Asset Value Analysis

Intrepid performed a net asset value (“NAV”) analysis of Mid-Con by calculating the estimated net present value of its estimated oil and gas reserves in each of the Proved Development Producing (“PDP”), Proved Developed Non-Producing (“PDNP”), and Proved Undeveloped (“PUD”) reserve categories, less estimated capital costs associated with extracting such reserves, based on the reserve reports provided by management of Mid-Con. Intrepid performed this analysis using a reserve adjustment factor (“RAF”) approach. Intrepid selected adjustment factors of (i) 100% for PDP reserves, (ii) 80%—95% for PDNP reserves, and (iii) 60%—80% for PUD reserves, in each case, as applied to each reserve category’s PV-10 values, based on the NYMEX strip pricing as of August 4, 2020 as previously described. Such analysis indicated an implied net reserve value reference range of approximately $166 million—$174 million.

Intrepid then derived implied equity value per share reference ranges from the resulting reserve value reference ranges, adjusting for costs not otherwise captured in the costs associated with extracting reserves, as provided by Mid-Con management, and using the net debt and diluted unit information also provided by Mid-Con management. This analysis indicated an implied equity value per Mid-Con common unit reference range of $5.58—$6.55.

 

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Precedent Transactions Analysis

Intrepid evaluated certain financial information with respect to the following oil-weighted, waterflood precedent transactions, each of which was announced during the period between January 2015 and October 2020:

 

Date

  

Buyer(s)

  

Seller(s)

12/31/19

   Blackbeard Operating LLC    ConocoPhillips

2/19/19

   Scout Energy Partners    Mid-Con Energy Partners LP

2/19/19

   Mid-Con Energy Partners LP    Scout Energy Partners

10/31/18

   Merit Energy Company    Pioneer Natural Resources, Newpek LLC

8/9/18

   Bainbridge Energy Partners LLC    Ultra Petroleum

7/31/18

   Mid-Con Energy Partners LP    Undisclosed Seller

7/18/18

   Mid-Con Energy Partners LP    Enduro Resource Partners LLC

5/16/18

   Polaris Production Partners LLC    Nighthawk Energy plc

2/14/18

   Scout Energy Partners    Linn Energy

12/19/17

   Scout Energy Partners    Linn Energy

11/14/17

   Exponent Energy LLC    Mid-Con Energy Partners LP

6/7/17

   Bridge Energy LLC    Linn Energy

5/30/17

   Denbury Resources    Linn Energy

5/23/17

   Berry Petroleum    Linn Energy

3/9/17

   Technology Enhanced Oil Plc    Sheridan Production Company LLC

10/14/16

   Sentinel Peak Resources California LLC    Freeport-McMoran Inc.

10/3/16

   Occidental Petroleum    Marathon Oil

8/1/16

   Colgate Operating LLC    SM Energy

8/1/16

   White Rock Oil and Gas    SM Energy

7/27/16

   Four Corners Petroleum II LLC    Whiting Petroleum

6/20/16

   Boaz Energy Partners LLC    Memorial Production Partners LP

5/26/16

   POG Resources    Mid-Con Energy Partners LP

4/11/16

   Merit Energy Company    Marathon Oil

10/31/15

   Scout Energy Partners    Willow Bend Oil LLC

4/29/15

   White Rock Oil and Gas    Whiting Petroleum

3/3/15

   Kohlberg Kravis Roberts & Co,
Fleur de Lis Energy LLC
   Anadarko

The transactions listed in the table above are referred to in this section as the “selected precedent transactions.” No selected transaction utilized in the precedent transactions analysis was identical or entirely comparable to the merger. Accordingly, Intrepid believes that purely quantitative analyses are not, in isolation, determinative in the context of the merger and that qualitative judgments concerning differences between the financial and operating characteristics and prospects of Mid-Con and Contango and the selected precedent transactions that could affect the values are also relevant.

As part of its precedent transactions analysis, Intrepid analyzed the ratio of transaction value to latest daily production and proved reserves. To adjust for prevailing oil price impacts on the production and reserve valuation multiples, Intrepid adjusted these headline ratios by multiplying each respective ratio by the quotient of (i) the 12-month NYMEX strip price as of August 4, 2020 and (ii) the 12-month NYMEX strip price at the time of announcement. The resulting adjusted high, mean, median and low trading multiples and ratios of the Mid-Con selected precedent transactions are set forth below.

 

     High      Mean      Median      Low  

EV/Production ($/Boe/d)

   $ 60,184      $ 30,844      $ 29,398      $ 5,760  

EV/Reserves ($/Boe)

   $ 9.91      $ 5.39      $ 5.00      $ 2.36  

 

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The table below includes relevant multiple reference ranges selected by Intrepid based on the precedent transaction multiples of the Mid-Con selected precedent transactions set forth above and Intrepid’s professional judgment.

 

Metric

   Reference Range  

EV/Production ($/Boe/d)

   $ 25,000 to $35,000  

EV/Reserves ($/Boe)

   $ 4.75 to $5.75  

Based upon this analysis, Intrepid determined an implied Mid-Con common unit price range of $0.99 to $2.76 based on the averages of the respective minimum and maximum enterprise values as derived by each of the methodologies, minus Mid-Con’s net debt, then divided by Mid-Con’s fully diluted common units outstanding.

Precedent Premiums Paid Analysis

Intrepid compared the premiums implied by the exchange ratio with premiums paid in selected U.S. upstream public all-stock corporate transactions announced during the period between January 2013 and October 2020. Intrepid calculated the implied premiums received considering the offer exchange ratio relative to the historical target/acquirer exchange ratio calculated based on prior 1-day closing prices, as well as 10- and 20-day volume-weighted average prices (“VWAP”) using publicly available information. Intrepid considered that premiums paid in the selected precedent transactions have varied widely based on specific considerations with respect to each transaction and that there are inherent differences between each of the targets and transactions analyzed by Intrepid relative to Mid-Con and the merger, respectively. Intrepid analyzed the following transactions:

 

Date Announced

  

Acquirer

  

Target

10/20/2020

   Pioneer Natural Resources Company    Parsley Energy, Inc.

10/19/2020

   ConocoPhillips    Concho Resources Inc.

9/28/2020

   Devon Energy Corporation    WPX Energy, Inc.

8/12/2020

   Southwestern Energy Company    Montage Resources Corp.

7/20/2020

   Chevron Corporation    Noble Energy, Inc.

10/14/2019

   Parsley Energy, Inc.    Jagged Peak Energy, Inc.

8/26/2019

   PDC Energy, Inc.    SRC Energy Inc

7/15/2019

   Callon Petroleum Company    Carrizo Oil & Gas, Inc.

11/1/2018

   Ovintiv Inc    Newfield Exploration Company

8/14/2018

   Diamondback Energy, Inc.    Energen Corporation

3/28/2018

   Concho Resources Inc.    RSP Permian, Inc.

5/16/2016

   Range Resources Corporation    Memorial Resource Development

5/21/2015

   Vanguard Natural Resources, LLC    Eagle Rock Energy Partners, L.P.

5/11/2015

   Noble Energy, Inc.    Rosetta Resources Inc.

4/20/2015

   Vanguard Natural Resources, LLC    LRR Energy, L.P.

7/13/2014

   Whiting Petroleum Corporation    Kodiak Oil & Gas Corp.

4/30/2013

   Contango Oil & Gas Company    Crimson Exploration Inc.

2/20/2013

   LinnCo. LLC    Berry Petroleum

The high, mean, median, and low premiums are set forth below:

 

Premium

   High     Mean     Median     Low  

T-1

     37.7     13.5     12.0     (5.0 %) 

10-Day VWAP

     29.8     13.9     13.8     (9.5 %) 

20-Day VWAP

     27.3     13.4     14.8     (5.7 %) 

Intrepid reviewed the relevant merger premiums and derived a range of premiums to Mid-Con’s 20-day volume-weighted average common unit price as of October 23, 2020, of (5.7%) to 27.3%. Intrepid determined an implied equity value per Mid-Con common unit range of $2.52 to $3.40.

 

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Intrepid made numerous judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters. Mathematical analysis, such as determining the median and mean, is not in itself a meaningful method of using comparable transaction data. Also, the transaction multiples and implied premiums for the precedent transactions reflect the cyclicality of the oil and gas industry and any potential business, economic, market, regulatory and other conditions impacting such transactions.

Analysis of Contango

Comparable Company Trading Analysis

Intrepid performed a comparable company trading analysis of Contango by reviewing and comparing the market values and trading multiples of the following publicly-traded, small-cap companies that Intrepid deemed to have certain characteristics similar to those of Contango:

Onshore E&P companies:

 

   

Berry Corporation

 

   

Bonanza Creek Energy Inc.

 

   

Earthstone Energy, Inc.

 

   

Goodrich Petroleum Corporation

 

   

Northern Oil and Gas, Inc.

 

   

Penn Virginia Corporation

Offshore E&P companies:

 

   

Talos Energy, Inc.

 

   

W&T Offshore, Inc.

These companies are referred to in this section as the “Contango selected comparable companies.” Intrepid performed the comparable company trading analysis based on data derived from public company filings and disclosures, publicly available disclosures and broker research estimates. Although none of the Contango selected comparable companies are directly comparable to Contango, the companies included were selected because they are small-cap companies with operations, asset profiles, financial profiles, service profiles, geographic exposure and/or entity structure that, in Intrepid’s experience and professional judgment, for purposes of this analysis, may be considered similar to certain aspects of those of Contango. Accordingly, Intrepid believes that purely quantitative analyses are not, in isolation, determinative in the context of the merger and that qualitative judgments concerning differences between the financial and operating characteristics and prospects of Contango and the Contango selected comparable companies also are relevant.

For each of the Contango selected comparable companies, Intrepid calculated the following trading multiples based on information from public company filings and disclosures, publicly available disclosure statements and broker research estimates, using applicable market data as of October 23, 2020, including:

 

   

Enterprise value / EBITDAX, which is calculated as enterprise value divided by EBITDAX (as projected by broker research analysts) (each company’s definition of EBITDAX may vary);

 

   

Enterprise value / average daily production (2020E, as projected by broker research);

 

   

Enterprise value / proved developed reserves; and

 

   

Enterprise value / proved reserves.

 

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The resulting high, mean, median, and low trading multiples and ratios of the Contango selected comparable companies are set forth below.

 

     High      Mean      Median      Low  

Contango selected comparable companies – Overall

 

        

EV/2020E EBITDAX (x)

     6.0x        3.5x        3.2x        2.3x  

EV/2021E EBITDAX (x)

     5.4x        3.6x        3.2x        2.7x  

EV/2020E Daily Production ($/Boe/d)

   $ 43,936      $ 24,390      $ 22,857      $ 11,149  

EV/PD Reserves ($/Boe)

   $ 18.74      $ 10.59      $ 10.16      $ 6.28  

EV/Proved Reserves ($/Boe)

   $ 10.54      $ 5.53      $ 5.07      $ 2.95  

Contango selected comparable companies – Onshore

 

        

EV/2020E EBITDAX (x)

     4.2x        3.1x        2.7x        2.3x  

EV/2021E EBITDAX (x)

     5.4x        3.5x        3.2x        2.7x  

EV/2020E Daily Production ($/Boe/d)

   $ 43,936      $ 24,430      $ 22,857      $ 11,149  

EV/PD Reserves ($/Boe)

   $ 18.74      $ 11.28      $ 10.16      $ 8.10  

EV/Proved Reserves ($/Boe)

   $ 10.54      $ 5.12      $ 4.25      $ 2.95  

Contango selected comparable companies – Offshore

 

        

EV/2020E EBITDAX (x)

     6.0x        4.8x        4.8x        3.6x  

EV/2021E EBITDAX (x)

     4.7x        3.8x        3.8x        3.0x  

EV/2020E Daily Production ($/Boe/d)

   $ 27,677      $ 24,269      $ 24,269      $ 20,861  

EV/PD Reserves ($/Boe)

   $ 10.74      $ 8.51      $ 8.51      $ 6.28  

EV/Proved Reserves ($/Boe)

   $ 8.16      $ 6.76      $ 6.76      $ 5.36  

The table below includes relevant multiple reference ranges selected by Intrepid based on the trading multiples of the Mid-Con selected comparable companies set forth above and Intrepid’s professional judgment.

 

     Reference Range  

Metric

   Onshore      Offshore  

EV/2020E EBITDAX (x)

     2.5x to 4.0x        3.5x to 4.5x  

EV/2021E EBITDAX (x)

     3.5x to 5.0x        3.5x to 5.0x  

EV/2020E Daily Production ($/Boe/d)

   $ 25,000 to $30,000      $ 20,000 to $25,000  

EV/PD Reserves ($/Boe)

   $ 8.00 to $12.00      $ 7.00 to $10.00  

EV/Proved Reserves ($/Boe)

   $ 4.00 to $5.50      $ 6.00 to $8.00  

For purposes of its analysis, in its professional judgment, Intrepid reviewed all trading multiples and ratios for the comparable companies and applied the relevant onshore and offshore trading multiples and ratios to the EBITDAX, production and reserves attributable to Contango’s onshore and offshore assets, respectively.

Based upon the financial multiples observed in this analysis, Intrepid calculated an implied price per share of Contango common stock range of $1.18 to $1.80 based on the averages of the respective minimum and maximum enterprise values as derived by each of the methodologies.

Net Asset Value Analysis

Intrepid performed a NAV analysis of Contango by calculating the estimated net present value of its estimated oil and gas reserves and resources in each of the PDP, PDNP, PUD, Probable, and Prospective reserve and resource categories, less estimated capital costs associated with extracting such reserves, based on the reserve reports provided by management of Contango. Intrepid performed this analysis using a RAF approach. Intrepid selected adjustment factors of (i) 100% for PDP reserves, (ii) 75%—95% for PDNP reserves, (iii) 60%—80% for PUD reserves, (iv) 35%—54% for Probable reserves, and (v) 0%—10% for Prospective resources, in each case, as applied to each reserve category’s PV-10 values, based on the reserve reports provided by management of Contango and the NYMEX strip pricing as of August 4, 2020 as previously described. Such analysis indicated an implied net reserve value reference range of approximately $206 million—$343 million.

 

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Intrepid then derived implied equity value per share reference ranges from the resulting reserve value reference ranges, adjusting for costs not otherwise captured in the costs associated with extracting reserves, as provided by Contango management, and using the net debt and diluted share information also provided by Contango management. This analysis indicated an implied price per share of Contango common stock range of $0.66—$1.77.

Exchange Ratio Summary

Intrepid analyzed the implied exchange ratios resulting from the comparable company trading analyses, net asset value analyses, precedent transactions analysis, and precedent premiums paid analysis utilized to value the Mid-Con common units and shares of Contango common stock. Intrepid calculated the implied exchange ratio ranges by comparing (i) the low end of the valuation range for Mid-Con common units to the high end of the valuation range for shares of Contango common stock and (ii) the high end of the valuation range for Mid-Con common units to the low end of the valuation range for shares of Contango common stock. The resulting implied exchange ratio reference ranges utilizing each applicable valuation methodology are summarized below.

 

Benchmark

   Exchange Ratio

Comparable company trading analysis

   0.2418x to 2.1161x

Net asset value analysis

   3.1448x to 9.9181x

Precedent transactions analysis (1)

   0.5520x to 2.3360x

Precedent premiums paid analysis (2)

   1.7726x to 2.3933x

 

(1)

Implied price per share range of Contango common stock based on implied price per share range of Contango common stock under comparable company trading analysis.

(2)

To derive the implied exchange ratio range based on the Mid-Con premiums paid analysis, Intrepid applied a (5.7%) to 27.3% premium to the implied exchange ratio calculated using the 20-day volume-weighted average trading prices for Mid-Con common units and Contango common stock.

Intrepid compared the exchange ratio to each of the implied exchange ratio ranges derived by Intrepid from the aforementioned analyses.

Other Information Reviewed for Informational Purposes Only

Intrepid also reviewed and considered other factors, which were not considered part of its financial analyses in connection with rendering its advice, but were references for informational purposes, including, among other things, the Historical Exchange Ratio Analysis described below.

Historical Exchange Ratio Analysis

To illustrate the trend in the historical trading prices of Mid-Con common units and shares of Contango common stock, Intrepid considered historical data with regard to the trading prices of both Mid-Con common units and shares of Contango common stock for the period from October 23, 2019 to October 23, 2020. Intrepid observed that, during this period, the closing prices of Mid-Con common units ranged from $1.64 to $7.70 per unit (adjusted 2020 reverse split) and shares of Contango common stock ranged from $0.95 to $4.57. The exchange ratios, as calculated by the closing prices of Mid-Con common units and Contango common stock, ranged from 0.7102x to 3.1756x for the same period.

This information did not provide the basis for, and was not otherwise material to, the rendering of Intrepid’s fairness opinion.

General

As described above in this section, the preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the

 

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summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Intrepid’s opinion. In arriving at its fairness determination, Intrepid considered the results of all of its analyses and, except as otherwise described herein, did not attribute any particular weight to any factor or analysis considered by it. Intrepid made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses taken as a whole. No company or transaction used in the above analyses as a comparison is directly comparable to Contango, Mid-Con or the contemplated transaction. Accordingly, these analyses must take into account differences in the financial and operating characteristics of the selected publicly traded companies and differences in the structure and timing of the selected transactions and other factors that would affect the public trading value and acquisition value of the companies considered.

Intrepid prepared these analyses for purposes of providing its opinion only to the Contango board as to the fairness, from a financial point of view, of the exchange ratio in the merger to Contango. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Contango, Intrepid or any other person assumes responsibility if future results are materially different from those forecasted.

As described above, Intrepid’s opinion to the Contango board was only one of many factors taken into consideration by the Contango board and should not be viewed as determinative of the views of the Contango board in making its determination to approve the merger. The foregoing summary does not purport to be a complete description of the analyses performed by Intrepid in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Intrepid attached as Annex B to this joint consent statement/information statement/prospectus.

Miscellaneous

Intrepid and its affiliates, as part of their investment banking business, are regularly engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, private placements and other transactions as well as for real estate, corporate and other purposes. Intrepid and its affiliates also engage in advisory work, private equity activities, underwriting and financing, principal investing, investment management and other financial and non-financial activities and services for various persons and entities.

Intrepid and its affiliates and employees, and funds or other entities in which they invest or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in (i) equity, debt and other securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments (including bank loans and other obligations) of Contango, Mid-Con, any of their respective affiliates and third parties or any of the other parties to the transactions contemplated by the merger agreement, or (ii) any currency or commodity that may be involved in the transactions and other matters otherwise contemplated by the merger agreement for the accounts of Intrepid and its affiliates and employees and their customers.

Intrepid acted as financial advisor to the Contango board in connection with, and participated in certain of the negotiations leading to, the transaction contemplated by the merger agreement. Intrepid may in the future provide certain investment banking services to Contango, Mid-Con and/or their affiliates, for which Intrepid may receive compensation.

Intrepid was engaged by the Contango board to act as its financial advisor in connection with an evaluation of the merger by entering into an engagement letter. The engagement letter between the Contango board and Intrepid provides for an opinion fee of $1.0 million ($0.5 million of which is creditable against a transaction fee

 

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described below), which has been paid to Intrepid by Contango and was earned by Intrepid upon delivery, regardless of the conclusion reached by Intrepid. The Intrepid engagement letter also provides for a transaction fee of approximately $1.7 million, which becomes payable upon the consummation of the merger. In addition, Contango has agreed to reimburse Intrepid for certain of its expenses, including certain attorneys’ fees and disbursements, and to indemnify Intrepid and related persons against various liabilities, including certain liabilities under the federal securities laws. In the ordinary course of Intrepid’s business, Intrepid and its affiliates may invest in debt and/or equity of Contango and/or Mid-Con. Intrepid and its affiliates currently own 180,000 shares of Contango common stock. In addition, Intrepid and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking and other financial services to Contango, Mid-Con, Mid-Con GP and/or their affiliates and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as a book-running manager for certain equity offerings of Contango totaling approximately $166 million and (ii) having acted as financial advisor to Contango in connection with asset purchase transactions, pursuant to which Intrepid has received a total of approximately $4.4 million in fees from Contango.

The Contango board selected Intrepid as its financial advisor because it is a nationally recognized investment banking firm and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, private placements and valuations for corporate and other purposes. The Contango board selected Intrepid to act as its financial advisor on the basis of Intrepid’s qualifications and expertise, knowledge of the oil and gas industry, reputation in the investment community, independence and experience in transactions similar to the transactions described in the merger agreement, as well as familiarity with Contango and its business.

Opinion of the Mid-Con Conflicts Committee’s Financial Advisor

Opinion of Petrie Partners Securities, LLC

Petrie Partners was retained by Mid-Con in February 2020 to act as financial advisor on a general strategic transaction advisory basis. As merger discussions began with Contango, at the request of the Mid-Con conflicts committee, Petrie Partners transitioned its work to be on behalf of the Mid-Con conflicts committee pursuant to the same general engagement letter. On October 24, 2020, at a meeting of the Mid-Con conflicts committee, Petrie Partners rendered its oral opinion, subsequently confirmed by delivery of a written opinion, that, as of October 25, 2020 and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth in its opinion, the merger consideration to be received by the Mid-Con unaffiliated public unitholders pursuant to the merger agreement was fair, from a financial point of view, to such holders.

The full text of the written opinion of Petrie Partners, dated as of October 25, 2020, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex C to this joint consent statement/information statement/prospectus and is incorporated by reference in its entirety. You are urged to read the opinion carefully and in its entirety. This summary is qualified in its entirety by reference to the full text of such opinion. Petrie Partners’ opinion was addressed to, and provided for the information and benefit of, the Mid-Con conflicts committee in connection with its evaluation of whether the merger consideration to be received by the unaffiliated public unitholders was, as of October 25, 2020, fair, from a financial point of view, to such holders. Petrie Partners’ opinion did not address any other aspects of the merger and did not and does not constitute a recommendation as to how holders of Mid-Con common units should vote with respect to the merger.

In connection with rendering its opinion and performing its related financial analyses, Petrie Partners, among other things:

 

   

reviewed certain publicly available information relating to Mid-Con and Contango, including (i) Annual Reports on Form 10-K and related audited financial statements of Mid-Con and Contango

 

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for the fiscal year ended December 31, 2019 and (ii) the Quarterly Reports on Form 10-Q for Mid-Con and Contango and related unaudited financial statements for the fiscal periods ended March 31, 2020 and June 30, 2020;

 

   

reviewed certain non-public projected financial and operating data relating to Mid-Con and Contango prepared and furnished to us by the management teams and staff of Mid-Con and Contango;

 

   

reviewed certain estimates of Mid-Con’s oil and gas reserves, including estimates of proved and probable reserves prepared by Mid-Con as of July 1, 2020;

 

   

reviewed (i) certain estimates of Contango’s oil and gas reserves, all as of July 1, 2020, including estimates of proved, probable and possible reserves and undeveloped resource potential, prepared by Contango and (ii) estimates of Exaro Energy III LLC’s proved developed producing reserves (the “Exaro Reserves”) prepared by W.D. Von Gonten & Co. (“WDVG”) as of July 1, 2020;

 

   

reviewed the equity purchase agreement and other relevant documents relating to the private placement of common stock by Contango and the commitment letters and other relevant documents relating to the Contango reserve-based lending facility;

 

   

compared recent stock market capitalization indicators for Mid-Con and Contango with recent stock market capitalization indicators for certain similar publicly traded independent exploration and production companies that we deemed to be relevant;

 

   

discussed current operations, financial positioning and future prospects of Mid-Con and Contango with the respective management teams of Mid-Con and Contango;

 

   

reviewed historical market prices and trading histories of Mid-Con common units and Contango common stock;

 

   

compared the financial terms of the merger with the financial terms of similar transactions that we deemed to be relevant;

 

   

participated in certain discussions and negotiations among the managements of Mid-Con and Contango and their respective financial and legal advisors;

 

   

reviewed a draft of the merger agreement dated October 25, 2020; and

 

   

reviewed such other financial studies and analyses and performed such other investigations and have taken into account such other matters as we have deemed necessary and appropriate.

In rendering its opinion, upon the advice of the managements of Mid-Con and Contango, Petrie Partners assumed and relied upon, without assuming any responsibility or liability for, or independently verifying the accuracy or completeness of, all of the information publicly available and all the information supplied or otherwise made available to Petrie Partners by Mid-Con and Contango or any third-parties on their behalf. Petrie Partners further relied upon the assurances of representatives of the respective managements of Mid-Con and Contango that they were unaware of any facts that would make the information provided to Petrie Partners incomplete, inaccurate or misleading in any material respect. With respect to projected financial and operating data, Petrie Partners assumed, upon the advice of Mid-Con and Contango, that such data had been prepared in a manner consistent with historical financial and operating data and reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the managements and staffs of Mid-Con and Contango relating to the future financial and operational performance of Mid-Con and Contango, respectively. Petrie Partners expressed no view as to any projected financial and operating data relating to Mid-Con or Contango or the assumptions on which they were based.

With respect to the estimates of oil and gas reserves and resource potential, Petrie Partners assumed, upon the advice of Mid-Con and Contango, that they were reasonably prepared on bases reflecting the best available estimates and good faith judgments of the respective managements and staffs of Mid-Con and Contango (or in

 

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the case of the Exaro Reserves, WDVG) relating to the oil and gas properties of Mid-Con and Contango. Petrie Partners expressed no view as to any reserve or resource potential data relating to Mid-Con or Contango, or the assumptions on which they were based.

Petrie Partners did not make an independent evaluation or appraisal of the assets or liabilities of Mid-Con or Contango, nor, except for the estimates of oil and gas reserves and resource potential referred to above, was Petrie Partners furnished with any such evaluations or appraisals, nor did Petrie Partners evaluate the solvency or fair value of Mid-Con or Contango under any state or federal laws relating to bankruptcy, insolvency or similar matters. In addition, Petrie Partners did not assume any obligation to conduct, nor did Petrie Partners conduct, any physical inspection of the properties or facilities of Mid-Con or Contango.

For purposes of rendering its opinion, Petrie Partners assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement were true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement and that all conditions to consummation of the merger will be satisfied without material waiver or modification thereof. Petrie Partners further assumed, upon the advice of Mid-Con and Contango, that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the transactions contemplated by the merger agreement will be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on Mid-Con or Contango or on the consummation of the merger or that would materially reduce the benefits of the merger to Mid-Con or Contango.

Petrie Partners’ opinion relates solely to the fairness, from a financial point of view, of the merger consideration to be received by the unaffiliated public unitholders pursuant to the merger agreement. Petrie Partners did not express any view on, and its opinion does not address, (i) the fairness of the proposed merger to, or any consideration received in connection therewith by, any creditors or other constituencies of Mid-Con, (ii) the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Mid-Con or Contango, or any class of such persons, whether relative to the merger consideration or otherwise, and (iii) the effect of any voting or similar agreement or understanding to be entered into in connection with or contemplated by the merger, or any related transactions, including the asset purchase agreement. Petrie Partners assumed that any modification to the structure of the merger will not vary in any material respect from what Petrie Partners assumed in its analysis. Petrie Partners’ advisory services and the opinion expressed therein were provided for the information and benefit of the Mid-Con conflicts committee in connection with its consideration of the transactions contemplated by the merger agreement, and Petrie Partners’ opinion does not constitute a recommendation to any holder of Mid-Con common units as to how such holder should vote with respect to any of the transactions contemplated by the merger agreement. The issuance of Petrie Partners’ opinion was approved by the Opinion Committee of Petrie Partners.

Petrie Partners’ opinion does not address the relative merits of the merger as compared to any alternative business transaction or strategic alternative that might be available to Mid-Con, nor does it address the underlying business decision of Mid-Con to engage in the merger. Petrie Partners was not asked to consider, and this opinion does not address, the tax consequences of the merger to any particular unitholder of Mid-Con or any particular stockholder of Contango, or the prices at which Mid-Con common units or Contango common stock will actually trade at any time, including following the announcement or consummation of the merger. Petrie Partners did not render any legal, accounting, tax or regulatory advice and understands Mid-Con has relied and is relying on other advisors as to legal, accounting, tax and regulatory matters in connection with the merger.

Petrie Partners acted as financial advisor to the Mid-Con conflicts committee, and Petrie Partners received a fee from Mid-Con for its services related to the rendering of its opinion, which fee was payable regardless of the conclusions expressed therein. Mid-Con also agreed to reimburse Petrie Partners’ expenses, and Petrie Partners will be entitled to receive a success fee if the merger is consummated. In addition, Mid-Con agreed to indemnify Petrie Partners for certain liabilities potentially arising out of Petrie Partners’ engagement. During the two-year period prior to the date of the opinion, no material relationship existed between Petrie Partners and its affiliates

 

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and Contango and their applicable affiliates pursuant to which Petrie Partners or any of its affiliates received compensation as a result of such relationship. One of Petrie Partners’ principals is the beneficial owner of approximately 6,050 shares of Contango common stock, the beneficial ownership of which was acquired in connection with a private placement of equity securities in 2005 by a company that merged into Contango in 2013. During the two-year period prior to the date of the opinion, Petrie Partners and its affiliates performed advisory services for Mid-Con and its affiliates and received customary compensation for such services. Additionally, Petrie Partners may provide financial or other services to Mid-Con and Contango in the future and in connection with any such services Petrie Partners may receive customary compensation for such services.

Petrie Partners’ opinion was rendered on the basis of conditions in the securities markets and the oil and gas markets as they existed and could be evaluated on October 25, 2020 and the conditions and prospects, financial and otherwise, of Mid-Con and Contango as they were represented to Petrie Partners on that date or as they were reflected in the materials and discussions described above. It is understood that subsequent developments may affect Petrie Partners’ opinion and that Petrie Partners does not have any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses

Set forth below is a summary of the material financial analyses performed and reviewed by Petrie Partners with the Mid-Con conflicts committee in connection with rendering Petrie Partners’ oral opinion on October 24, 2020 and the preparation of its written opinion letter dated October 25, 2020. Each analysis was provided to the Mid-Con conflicts committee. In connection with arriving at its opinion, Petrie Partners considered all of its analyses as a whole, and the order of the analyses described and the results of these analyses do not represent any relative importance or particular weight given to these analyses by Petrie Partners. Except as otherwise noted, the following quantitative information (including the closing prices for Mid-Con common units and Contango common shares), to the extent that it is based on market data, is based on market data that existed on October 23, 2020, and is not necessarily indicative of current market conditions.

The following summary of financial analyses includes information presented in tabular format. These tables must be read together with the text of each summary in order to understand fully the financial analyses performed by Petrie Partners. The tables alone do not constitute a complete description of the financial analyses performed by Petrie Partners. Considering the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Petrie Partners’ financial analyses.

Reference Value Analyses

Petrie Partners performed a series of analyses to derive a range of implied exchange ratios by utilizing the following methodologies to arrive at per unit equity reference value ranges for Mid-Con and per share equity reference value ranges for Contango.

Discounted Cash Flow Analysis

Petrie Partners performed a discounted cash flow analysis to determine indicative reference values of Mid-Con’s common units and Contango’s common shares, based on the present value of the future cash flows expected to be generated from the reserves and undeveloped resources based on Mid-Con’s and Contango’s respective internal estimates.

Petrie Partners evaluated four scenarios in which the principal variable was oil and gas prices. The four price case scenarios represent long-term potential future benchmark prices per barrel of oil and per million British thermal units (“MMBtu”) of natural gas. Adjustments were made to these prices to reflect location and quality differentials. One price scenario was based on New York Mercantile Exchange (“NYMEX”) strip pricing

 

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as of October 23, 2020 for the calendar years 2020 through 2024, escalated at 1.5% per annum thereafter. Benchmark prices for the other three scenarios were based on $40.00, $50.00 and $60.00 per barrel of oil, respectively, and $2.00, $2.50 and $3.00 per MMBtu for gas, respectively, and were held constant. Petrie Partners applied various discount rates ranging from 10% to 25% to the cash flows of the proved reserves and undeveloped resource estimates. Petrie Partners selected the discount rates based on its professional judgment regarding the relative risk of the underlying assets and related cash flows depending on reserve category, development status and geographic location. Petrie Partners then adjusted (as applicable) for the present value of future estimated general and administrative expenses, commodity derivatives, cash taxes, other assets and liabilities and estimated long-term debt and estimated net working capital as of June 30, 2020, as appropriate and then dividing by the number of fully diluted units for Mid-Con and fully diluted shares for Contango, calculated using the treasury method, based on disclosures in each respective company’s Quarterly Report on Form 10-Q for the fiscal period ended June 30, 2020 and information provided by each company’s respective management teams, Petrie Partners determined the following implied equity reference value ranges per unit of Mid-Con common units and per share of Contango common stock. Using these implied equity reference value ranges, Petrie Partners calculated a range of implied exchange ratios by dividing the lowest implied per unit equity value for Mid-Con by the highest implied per share equity value for Contango, and vice versa.

 

    NYMEX Strip
(October 23, 2020)
    $40.00 Oil
& $2.00 Gas
    $50.00 Oil
& $2.50 Gas
    $60.00 Oil
& $3.00 Gas
 
    Low     High     Low     High     Low     High     Low     High  

Mid-Con Implied Equity Value ($/unit)

  $ 0.22     $ 1.11     $ 0.00     $ 0.00     $ 1.42     $ 2.45     $ 4.19     $ 5.46  

Contango Implied Equity Value ($/share)

  $ 0.67     $ 1.01     $ 0.37     $ 0.58     $ 0.91     $ 1.40     $ 1.75     $ 2.43  

Implied Exchange Ratio

    0.2219       1.6601       NM       NM       1.0128       2.6796       1.7199       3.1210  

Comparable Transaction Analysis

Precedent Transactions for Mid-Con

Petrie Partners reviewed selected publicly available information for 22 oil and gas transactions announced since January 2015 that included assets that Petrie Partners determined were similar to Mid-Con’s oil and gas assets and had a value greater than or equal to $5 million, although Petrie Partners noted that none of the reviewed transactions were directly comparable to Mid-Con.

 

Date Announced

  

Buyer

  

Seller

Secondary / Tertiary

     

02/19/19

   Mid-Con Energy Partners, LP    Scout Energy Partners, LP

12/19/17

   Scout Energy Partners, LP    LINN Energy, Inc.

11/14/17

   Exponent Energy III, LLC    Mid-Con Energy Partners, LP

10/13/17

   Perdure Petroleum, LLC    Chaparral Energy, Inc.

09/14/17

   Elk Petroleum Limited    Resolute Energy Corporation

06/19/17

   Occidental Petroleum Corporation    Hess Corporation

06/12/17

   Merit Energy Partners, LP    Titan Energy, LLC

05/30/17

   Denbury Resources, Inc.    LINN Energy, Inc.

10/03/16

   Occidental Petroleum Corporation    Marathon Oil Corporation

07/27/16

   Four Corners    Whiting Petroleum Corporation

04/11/16

   Merit Energy Partners LLP    Marathon Oil Corporation

04/08/15

   Denbury Resources, Inc.    Argent Energy (US) Holdings, Inc.

03/03/15

   KKR; Fleur de Lis Energy LLC    Anadarko Petroleum Corporation

Conventional

     

06/30/19

   Undisclosed Buyer    Gulfport Energy Corporation

06/21/19

   Mai Oil Operations, Inc.    Empire Energy Group Ltd

05/07/19

   Sabinal Energy Operating, LLC    Diamondback Energy, Inc.

02/27/19

   Empire Petroleum Corp    EnergyQuest II, LLC

10/31/18

   Merit Energy Partners LLP    Pioneer Natural Resources Company

 

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Date Announced

  

Buyer

  

Seller

08/09/18

   Bainbridge Energy Partners, LLC    Ultra Petroleum Corp.

08/01/18

   Stephens & Johnson Operating Co.    Lime Rock Resources, LP

07/24/18

   American Patriot Oil & Gas Ltd    Foothills Resources, Inc.

11/20/17

   Finley Resources, Inc.    Bill Barret Corporation

Based on the multiples implied by these transactions and Petrie Partners’ judgment on the comparability of each transaction versus the oil and gas assets of Mid-Con (which are located in Oklahoma and Wyoming), Petrie Partners applied relevant transaction multiples to Mid-Con’s assets to determine an appropriate asset reference value range. With respect to Mid-Con’s oil and gas assets, Petrie Partners applied multiples ranging from $4.00 to $5.00 per barrel of oil equivalent (“boe”) of proved reserves and $20,000 to $30,000 per barrel of oil equivalent per day (“boepd”) of current production. Petrie Partners then adjusted the asset reference value range by the estimated value of other assets and liabilities and long-term debt and net working capital as of June 30, 2020 to calculate an implied equity reference value range of Mid-Con’s common units. Petrie Partners determined an implied per unit equity reference value range of $0.78 to $2.17 per unit for Mid-Con’s common units.

The minimum, mean, median and maximum transaction multiples implied by the precedent Secondary / Tertiary transactions are set forth below.

 

Measure    Minimum      Mean      Median      Maximum  

Transaction Value/Proved Reserves ($/Boe)

   $ 2.30      $ 4.74      $ 4.44      $ 9.19  

Transaction Value/Production ($/Boepd)

   $ 20,960      $ 41,811      $ 42,237      $ 73,171  

Adjusted Transaction Value/Proved Reserves ($/Boe) (1)

   $ 1.81      $ 3.74      $ 3.54      $ 6.85  

Adjusted Transaction Value/Production ($/Boepd) (1)

   $ 14,931      $ 34,376      $ 34,482      $ 67,248  

 

  (1)

Adjusted Transaction Value calculated as the product of the Transaction Value and the ratio of the NYMEX 12-month strip pricing as of October 23, 2020 divided by the NYMEX 12-month strip pricing as of the date of the transaction announcement.

The minimum, mean, median and maximum transaction multiples implied by the precedent Conventional transactions are set forth below.

 

Measure    Minimum      Mean      Median      Maximum  

Transaction Value/Proved Reserves ($/Boe)

   $ 4.57      $ 7.13      $ 5.36      $ 11.54  

Transaction Value/Production ($/Boepd)

   $ 15,775      $ 42,495      $ 47,826      $ 55,549  

Adjusted Transaction Value/Proved Reserves ($/Boe) (1)

   $ 2.89      $ 4.82      $ 3.47      $ 7.64  

Adjusted Transaction Value/Production ($/Boepd) (1)

   $ 11,138      $ 28,862      $ 31,379      $ 40,234  

 

  (1)

Adjusted Transaction Value calculated as the product of the Transaction Value and the ratio of the NYMEX 12-month strip pricing as of October 23, 2020 divided by the NYMEX 12-month strip pricing as of the date of the transaction announcement.

Precedent Transactions for Contango

Petrie Partners reviewed selected publicly available information for 43 oil and gas transactions announced (i) since January 2014 that included assets in the Gulf of Mexico Shelf and had a value greater than or equal to $10 million, (ii) since January 2017 that included assets in the Delaware Basin and had a value greater than or equal to $100 million and (iii) since January 2014 that included assets in the Mississippi Lime and had a value greater than or equal to $10 million, although Petrie Partners noted that none of the reviewed transactions were directly comparable to Contango.

 

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Date Announced

 

Buyer

 

Seller

Gulf of Mexico

   

08/20/20

  San Juan Offshore   Arena Energy

06/22/20

  Talos Energy, Inc.   Castex Energy, LLC

12/10/19

  Talos Energy, Inc.   ILX Holdings LLC; Castex Energy, LLC; Venari Resources, LLC

06/27/19

  W&T Offshore, Inc.   ExxonMobil Corporation

02/01/18

  Northstar Offshore Ventures, LLC   PetroQuest Energy, Inc.

08/11/15

  Energy XXI Ltd   M21K, LLC

07/01/15

  Trimont Energy Ltd; Whitney Oil & Gas Co.   Energy XXI Ltd

06/30/14

  Talos Energy, Inc.   Stone Energy Corporation

03/12/14

  M21K, LLC   Energy XXI Ltd

01/07/14

  Fieldwood Energy LLC   SandRidge Energy, Inc.

01/02/14

  EPL Oil & Gas, Inc.   CNOOC Limited

Delaware Basin

   

12/16/19

  WPX Energy, Inc.   Felix Energy II

02/19/19

  Tall City Exploration III, LLC   Noble Energy, Inc.

08/14/18

  Carrizo Oil & Gas, Inc.   Devon Energy Corporation

05/24/18

  Callon Petroleum Company   Cimarex Energy Co.

05/14/18

  Matador Resources Company   Jetstream Oil & Gas Partners

02/26/18

  Undisclosed Buyer   Centennial Resource Development, Inc.

02/20/18

  Colgate Energy, LLC; Luxe Operating, LLC   Concho Resources, Inc.

02/06/18

  Halcón Resources Corporation   Royal Dutch Shell plc

02/06/18

  Halcón Resources Corporation   BTA Oil Producers, LLC

12/11/17

  Oasis Petroleum, Inc.   Forge Energy, LLC

10/30/17

  Rosehill Operating Company, LLC   Whitehorse Energy, LLC; Siltstone Resources II, LLC

08/07/17

  RSP Permian, Inc.   Florida Oil, LP; Anadarko Petroleum Corporation; Royal Dutch Shell plc

06/28/17

  Carrizo Oil & Gas, Inc.   ExL Petroleum, LP

05/01/17

  Centennial Resource Development, Inc.   GMT Exploration Company, LLC

03/21/17

  Marathon Oil Corporation   Black Mountain Exploration, LLC

03/09/17

  Marathon Oil Corporation   BC Operating, Inc.

03/03/17

  Resolute Energy Corporation   CP Exploration II, LLC

01/24/17

  Halcón Resources Corporation   Samson Energy Co, LLC

01/17/17

  ExxonMobil Corporation   Bopco. LP

01/12/17

  WPX Energy, Inc.   Panther Energy Company II, Carrier Energy Partners LLC

01/10/17

  Parsley Energy, Inc.   Apache Corporation

01/04/17

  PDC Energy, Inc.   Fortuna Resources Holdings, LLC

Mississippi-Lime

   

09/27/19

  Contango Oil & Gas Company   White Star Petroleum, LLC

09/12/19

  Contango Oil & Gas Company   Will Energy Corp

11/09/18

  SNR Northern Oklahoma Operating, LLC   AusTex Oil Ltd

03/02/17

  White Star Petroleum, LLC   Sundance Energy, Inc.

11/16/16

  Wells Fargo Bank, N.A.   Atinum Midcon I, LLC

10/28/16

  Fairway Resources Operating, Inc.   Samson Resources Corporation

04/20/16

  White Star Petroleum, LLC   Devon Energy Corporation

12/31/14

  Chaparral Energy, Inc.   Undisclosed Seller

09/15/14

  Eagle Energy Exploration, LLC   Fairway Resource Partners II, LLC

02/20/14

  Tapstone Energy, LLC   Royal Dutch Shell plc

 

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The minimum, mean, median and maximum transaction multiples implied by the precedent Gulf of Mexico transactions are set forth below.

 

Measure    Minimum      Mean      Median      Maximum  

Transaction Value/Proved Reserves ($/Boe)

   $ 1.94      $ 12.41      $ 14.71      $ 27.08  

Transaction Value/Production ($/Boepd)

   $ 4,582      $ 20,292      $ 10,500      $ 61,450  

Adjusted Transaction Value/Proved Reserves ($/Boe) (1)

   $ 1.56      $ 7.42      $ 7.44      $ 15.76  

Adjusted Transaction Value/Production ($/Boepd) (1)

   $ 3,466      $ 12,713      $ 10,140      $ 27,537  

 

  (1)

Adjusted Transaction Value calculated as the product of the Transaction Value and the ratio of the NYMEX 12-month strip pricing as of October 23, 2020 divided by the NYMEX 12-month strip pricing as of the date of the transaction announcement.

The minimum, mean, median and maximum transaction multiples implied by the precedent Delaware Basin transactions are set forth below.

 

Measure    Minimum      Mean      Median      Maximum  

Transaction Value/Production ($/Boepd)

   $ 41,667      $ 244,954      $ 210,000      $ 562,800  

Transaction Value/Net Acres ($/Acre)

   $ 10,154      $ 27,528      $ 26,311      $ 46,601  

Transaction Value/Adjusted Net Acres ($/Acre) (1)

   $ 13,713      $ 24,293      $ 24,578      $ 42,291  

Adjusted Transaction Value/Production ($/Boepd) (2)

   $ 36,759      $ 196,288      $ 179,997      $ 431,629  

Adjusted Transaction Value/Net Acres ($/Acre) (2)

   $ 8,090      $ 22,453      $ 20,415      $ 37,702  

Adjusted Transaction Value/Adjusted Net Acres ($/Acre) (1) (2)

   $ 9,933      $ 19,781      $ 19,070      $ 33,649  
  (1)

Transaction Value/Adjusted Net Acre metrics calculated by subtracting the estimated value of current production at $25,000 per Boepd from the Purchase Price for each selected transaction and then dividing the remaining value by the net acreage acquired.

  (2)

Adjusted Transaction Value calculated as the product of the Transaction Value and the ratio of the NYMEX 12-month strip pricing as of October 23, 2020 divided by the NYMEX 12-month strip pricing as of the date of the transaction announcement.

The minimum, mean, median and maximum transaction multiples implied by the precedent Mississippi-Lime transactions are set forth below.

 

Measure    Minimum      Mean      Median      Maximum  

Transaction Value/Production ($/Boepd)

   $ 8,833      $ 21,637      $ 16,073      $ 48,750  

Adjusted Transaction Value/Production ($/Boepd) (1)

   $ 8,270      $ 17,799      $ 16,201      $ 29,148  

 

  (1)

Adjusted Transaction Value calculated as the product of the Transaction Value and the ratio of the NYMEX 12-month strip pricing as of October 23, 2020 divided by the NYMEX 12-month strip pricing as of the date of the transaction announcement.

Based on the multiples implied by these transactions and Petrie Partners’ judgment on the comparability of each transaction versus the oil and gas assets of Contango (which are located primarily in the Gulf of Mexico, Texas Delaware Basin and Mississippi Lime), Petrie Partners applied relevant transaction multiples to Contango’s assets to determine an appropriate asset reference value range. With respect to Contango’s proved Gulf of Mexico oil and gas assets, Petrie Partners applied multiples ranging from $5.00 to $8.00 per boe of proved reserves and $10,000 to $20,000 per boepd of current production. With respect to Contango’s Delaware Basin oil and gas assets, Petrie Partners applied multiples ranging from $20,000 to $30,000 per boepd of current production and $8,000 to $12,000 per net acre. With respect to Contango’s Mississippi Lime oil and gas assets, Petrie Partners applied multiples ranging from $8,500 to $16,500 per boepd of current production. With respect to Contango’s other proved oil and gas assets, Contango’s Gulf of Mexico prospect inventory and Contango’s

 

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interest in Exaro, Petrie Partners utilized a discounted cash flow analysis of projected future cash flows based on the present value of future after-tax cash flows expected to be generated from Contango’s proved reserves associated with these properties, based on New York Mercantile Exchange (“NYMEX”) strip pricing as of October 23, 2020 for the calendar years 2020 through 2024, escalated at 1.5% per annum thereafter. Petrie Partners then applied various discount rates to these cash flows, ranging from 10% to 25%. Petrie Partners selected the discount rates based on its professional judgment regarding the relative risk of the underlying assets and related cash flows depending on reserve category, development status and geographic location. Petrie Partners then adjusted the asset reference value range by the estimated value of other assets and liabilities and long-term debt and net working capital as of June 30, 2020 to calculate an implied equity reference value range of Contango’s common shares. Petrie Partners determined an implied per share equity reference value range of $1.04 to $2.21 per share for Contango’s common shares.

Petrie Partners divided the lowest Mid-Con per unit implied equity value by the highest Contango per share implied equity value, and vice versa, to determine a range of implied exchange ratios of 0.3546 to 2.0923 shares of Contango common stock per unit of Mid-Con common stock.

Precedent Transactions – Oil & Gas Corporate Transactions

Petrie Partners also reviewed 35 selected transactions with publicly available information for oil and gas corporate transactions announced since January 2010 in which the acquired or target company was an exploration and production company with oil and gas assets in the United States, although Petrie Partners noted that none of the selected transactions or the companies that participated in the selected transactions was directly comparable to the merger or Mid-Con or Contango.

 

Date Announced

  

Acquiring Company

  

Target Company

10/19/20

   Pioneer Natural Resources Company    Parsley Energy, Inc.

10/13/20

   ConocoPhillips    Concho Resources, Inc.

09/28/20

   Devon Energy Corporation    WPX Energy, Inc.

08/12/20

   Southwestern Energy Company    Montage Resources Corporation

07/20/20

   Chevron Corporation    Noble Energy, Inc.

10/14/19

   Parsley Energy, Inc.    Jagged Peak Energy, Inc.

10/01/19

   Citizen Energy Operating, LLC    Roan Resources, Inc.

07/15/19

   Callon Petroleum Company    Carrizo Oil & Gas, Inc.

08/26/19

   PDC Energy, Inc.    SRC Energy Inc.

05/06/19

   Midstates Petroleum Company, Inc.    Amplify Energy Corp.

04/12/19

   Occidental Petroleum Corporation    Anadarko Petroleum Corporation

11/19/18

   Cimarex Energy Co.    Resolute Energy Corporation

11/01/18

   Encana Corporation    Newfield Exploration Company

10/30/18

   Chesapeake Energy Corporation    WildHorse Resource Development Corporation

08/14/18

   Diamondback Energy, Inc.    Energen Corporation

06/18/18

   MLCJR LLC (Cox Oil)    Energy XXI Gulf Coast, Inc.

03/28/18

   Concho Resources Inc.    RSP Permian, Inc.

11/21/17

   Talos Energy, Inc.    Stone Energy Corporation

06/19/17

   EQT Corporation    Rice Energy Inc.

01/16/17

   Noble Energy, Inc.    Clayton Williams Energy, Inc.

05/16/16

   Range Resources Corporation    Memorial Resource Development Corp.

05/11/15

   Noble Energy, Inc.    Rosetta Resources, Inc.

07/13/14

   Whiting Petroleum Corporation    Kodiak Oil & Gas Corp.

03/12/14

   Energy XXI (Bermuda) Limited    EPL Oil & Gas, Inc.

04/30/13

   Contango Oil & Gas Company    Crimson Exploration Inc.

02/21/13

   Linn Energy, Inc.    Berry Petroleum Company

 

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Date Announced

  

Acquiring Company

  

Target Company

12/05/12

   Freeport-McMoRan Copper & Gold Inc.    McMoRan Exploration Co.

12/05/12

   Freeport-McMoRan Copper & Gold Inc.    Plains Exploration & Production Company

04/25/12

   Halcón Resources Corporation    GeoResources, Inc.

01/16/12

   Denver Parent Corporation    Venoco, Inc.

10/17/11

   Statoil ASA    Brigham Exploration Company

07/15/11

   BHP Billiton Petroleum (North America) Inc.    Petrohawk Energy Corporation

11/09/10

   Chevron Corporation    Atlas Energy, Inc.

04/15/10

   Apache Corporation    Mariner Energy, Inc.

04/04/10

   Sandridge Energy, Inc.    Arena Resources, Inc.

For each of the precedent corporate transactions, Petrie Partners calculated the following multiples (to the extent information was available):

 

   

Purchase Price/Current Year Discretionary Cash Flow, which is defined as the total purchase price paid by the acquiring company for the equity of the target (“Purchase Price”), divided by an estimate of discretionary cash flow of the target company for the calendar year in which the transaction occurred (“Current Year Discretionary Cash Flow”);

 

   

Purchase Price/Forward Year Discretionary Cash Flow, which is defined as the Purchase Price, divided by an estimate of discretionary cash flow of the target company for the calendar year following the year in which the transaction occurred (“Forward Year Discretionary Cash Flow”);

 

   

Total Investment/Current Year EBITDA, which is defined as the total investment made by the acquiring company including purchase price of common equity plus the assumption of target company net indebtedness (“Total Investment”), divided by estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the target company for the calendar year in which the transaction occurred (“Current Year EBITDA”);

 

   

Total Investment/Forward Year EBITDA, which is defined as Total Investment divided by estimated EBITDA of the target company for the calendar year following the year in which the transaction occurred (“Forward Year EBITDA”);

 

   

Total Investment/Proved Reserves, which is defined as Total Investment divided by proved reserves of the target company as of the latest published reserve report prior to the date of the transaction (“Proved Reserves”); and

 

   

Total Investment/Current Production, which is defined as Total Investment divided by the most recent publicly available average daily production figure of the target company prior to the date of the transaction (“Current Production”).

Petrie Partners applied the relevant multiples to Mid-Con’s and Contango’s respective estimated discretionary cash flow and EBITDA for calendar years 2020 and 2021 based on internal estimates furnished by Mid-Con and Contango, proved reserves as of December 31, 2019 and the latest current net production publicly disclosed by each company prior to October 23, 2020.

The minimum, mean, median and maximum transaction multiples implied for each benchmark for the precedent corporate transactions are set forth below.

 

Measure

   Minimum      Mean      Median      Maximum  

Purchase Price/Current Year Discretionary Cash Flow ($MM)

     0.8x        5.6x        4.9x        20.5x  

Purchase Price/Forward Year Discretionary Cash Flow ($MM)

     0.8x        4.6x        3.8x        19.6x  

Total Investment/Current Year EBITDA ($MM)

     3.2x        7.1x        6.7x        17.3x  

Total Investment/Forward Year EBITDA ($MM)

     1.7x        6.0x        5.6x        17.3x  

Total Investment/Proved Reserves ($/boe)

   $ 2.28      $ 13.64      $ 13.09      $ 50.24  

Total Investment/Current Production ($/boepd)

   $ 9,172      $ 53,836      $ 42,331      $ 192,159  

 

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Petrie Partners also evaluated the premiums paid in connection with the above corporate transactions based on the value of the per share consideration announced in each transaction relative to the closing stock price of the target company as of one day, 30 days and 60 days prior to the announcement date of the relevant transaction. The minimum, mean, median and maximum premiums paid for the precedent transactions are set forth below.

 

Period

   Minimum     Mean     Median     Maximum  

One day prior

     (7 %)      26     23     74

30 days prior

     (22 %)      26     21     86

60 days prior

     (24 %)      26     21     81

Based upon its review of these transactions, Petrie Partners selected purchase price multiple ranges for Mid-Con of 1.5x – 2.5x estimated Current Year Discretionary Cash Flow and 1.0x – 2.0x estimated Forward Year Discretionary Cash Flow, total investment multiple ranges of 4.0x – 5.0x estimated Current Year EBITDA, 3.5x – 4.5x estimated Forward Year EBITDA, $3.00 – $7.00 per Boe of Proved Reserves and $25,000 – $30,000 per Boepd of Current Production. Petrie Partners selected these multiples for Mid-Con based in part on geographic location, historical and estimated operating margins, historical and estimated growth, and its overall judgment of the current transaction market. Petrie Partners applied relevant premiums ranging from 0% to 10% to the one-day Mid-Con closing price, 15% to 20% to the 30-day Mid-Con closing price and 10% to 20% to the 60-day Mid-Con closing price prior to October 23, 2020. Based on the application of the above transaction multiples and taking into account the premiums paid analysis, Petrie Partners selected an enterprise value reference range of $80 million to $90 million. Petrie Partners then adjusted for long-term debt and net working capital as of June 30, 2020 to determine an implied per unit equity reference value range of $1.02 to $1.71 per unit of Mid-Con common equity.

For Contango, Petrie Partners selected purchase price multiple ranges of 2.0x – 3.5x estimated Current Year Discretionary Cash Flow and 2.0x – 4.0x estimated Forward Year Discretionary Cash Flow, total investment multiple ranges of 4.5x – 5.5x estimated Current Year EBITDA, 4.5x – 5.5x estimated Forward Year EBITDA, $3.00 – $7.00 per Boe of Proved Reserves and $20,000 – $30,000 per Boepd of Current Production. Petrie Partners selected these multiples for Contango based in part on geographic location, historical and estimated operating margins, historical and estimated growth, and its overall judgment of the current transaction market. Petrie Partners applied relevant premiums ranging from 0% to 10% to the one-day Contango closing price, 15% to 20% to the 30-day Contango closing price and 10% to 25% to the 60-day Contango closing price prior to October 23, 2020. Based on the application of the above transaction multiples and taking into account the premiums paid analysis, Petrie Partners selected an enterprise value reference range of $225 million to $275 million. Petrie Partners then adjusted for Contango’s interest in Exaro, long-term debt and net working capital as of June 30, 2020 to determine an implied per share equity reference value range of $0.97 to $1.28 per share of Contango common equity.

Petrie Partners divided the lowest Mid-Con per unit implied equity value by the highest Contango per share implied equity value, and vice versa, to determine a range of implied exchange ratios of 0.7983 to 1.7699 shares of Contango stock per unit of Mid-Con common equity.

Capital Market Comparison Analysis

Petrie Partners performed a capital market comparison analysis of Mid-Con and Contango by reviewing the market values and trading multiples of the following publicly traded companies that Petrie Partners deemed comparable as peer groups for Mid-Con and Contango.

 

Mid-Con Peer Group

  

Contango Peer Group

Amplify Energy Corp.    Amplify Energy Corp.
Bonanza Creek Energy, Inc.    Bonanza Creek Energy, Inc.
Earthstone Energy, Inc.    Earthstone Energy, Inc.
Evolution Petroleum Corporation    SandRidge Energy, Inc.

 

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Mid-Con Peer Group

  

Contango Peer Group

SandRidge Energy, Inc.    Talos Energy, Inc.
     W&T Offshore, Inc.
     Apache Corporation
     Hess Corporation
     Murphy Oil Corporation

Although the peer group companies were compared to Mid-Con and Contango for purposes of this analysis, no entity included in the capital market comparison analysis is identical to Mid-Con or Contango because of differences between the business mixes and other characteristics of the peer group companies. In evaluating the peer groups, Petrie Partners relied on publicly available filings and publicly available equity research analyst estimates, which estimates are based in part on judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters. Many of these matters are beyond the control of such analysts, Mid-Con, Contango or Petrie Partners.

All peer group multiples were calculated using closing stock prices on October 23, 2020. Peer group estimates of discretionary cash flow, EBITDA and production were based on publicly available consensus research analyst estimates as of October 23, 2020. Peer group proved reserves are as of December 31, 2019 as disclosed in publicly filed year-end annual reports on Form 10-K. For each of the peer group entities, Petrie Partners calculated the following:

 

   

Market Value/2020E Discretionary Cash Flow, which is defined as each company’s current common stock share price divided by that company’s estimated discretionary cash flow per share for the calendar year 2020 (“2020E discretionary cash flow”);

 

   

Market Value/2021E Discretionary Cash Flow, which is defined as each company’s current common stock share price divided by that company’s estimated discretionary cash flow per share for the calendar year 2021 (“2021E discretionary cash flow”);

 

   

Enterprise Value/2020E EBITDA, which is defined as market value of common equity, plus debt and preferred stock, less net working capital (“enterprise value”), divided by estimated EBITDA for the calendar year 2020 (“2020E EBITDA”);

 

   

Enterprise Value/2021E EBITDA, which is defined as enterprise value divided by estimated EBITDA for the calendar year 2021 (“2021E EBITDA”);

 

   

Enterprise Value/Proved Reserves, which is defined as enterprise value divided by proved reserves;

 

   

Enterprise Value/2020E Production, which is defined as enterprise value divided by forecasted average daily production for calendar year 2020 (“2020E production”); and

 

   

Enterprise Value/2021E Production, which is defined as enterprise value divided by forecasted average daily production for calendar year 2021 (“2021E production”).

 

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The trading multiples for each company as well as the minimum, mean, median and maximum trading multiples for the Mid-Con peer group are set forth below.

Mid-Con Peer Group

 

Company   Market
Value/’20E
Disc. Cash
Flow
    Market
Value/’21E
Disc. Cash
Flow
    Enterprise
Value/’20E
EBITDA
    Enterprise
Value/’21E
EBITDA
    Enterprise
Value/Proved
Reserves
($/Boe)
    Enterprise
Value/’20E
Production
($/Boepd)
    Enterprise
Value/’21E
Production
($/Boepd)
 

Amplify Energy Corp.

    0.5x       1.0x       3.6x       5.1x     $ 1.71     $ 10,480     $ 12,318  

Bonanza Creek Energy, Inc.

    2.7x       2.8x       2.9x       2.9x     $ 3.71     $ 18,433     $ 18,010  

Earthstone Energy, Inc.

    1.3x       1.6x       2.5x       3.0x     $ 3.57     $ 24,460     $ 24,996  

Evolution Petroleum Corporation

    8.7x       NM       5.3x       NM     $ 6.53     $ 25,813     $ 27,717  

SandRidge Energy, Inc.

    3.4x       0.6x       3.1x       1.0x     $ 1.39     $ 6,090     $ 6,681  

 

Minimum, Mean, Median, Maximum Multiples

   Minimum      Mean      Median      Maximum  

Market Value/2020E Discretionary Cash Flow

     0.5x        3.3x        2.7x        8.7x  

Market Value/2021E Discretionary Cash Flow

     0.6x        1.5x        1.3x        2.8x  

Enterprise Value/2020E EBITDA

     2.5x        3.5x        3.1x        5.3x  

Enterprise Value/2021E EBITDA

     1.0x        3.0x        3.0x        5.1x  

Enterprise Value/Proved Reserves ($/Boe)

   $ 1.39      $ 3.38      $ 3.57      $ 6.53  

Enterprise Value/2020E Production ($/Boepd)

   $ 6,090      $ 17,055      $ 18,433      $ 25,813  

Enterprise Value/2021E Production ($/Boepd)

   $ 6,681      $ 17,944      $ 18,010      $ 27,717  

Based upon its review of the Mid-Con peer group and its judgment of the comparability of each peer considering size, asset location, commodity mix and other factors, Petrie Partners selected market value multiple ranges for Mid-Con of 2.0x – 3.0x 2020E discretionary cash flow and 1.5x – 2.5x 2021E discretionary cash flow and enterprise value multiple ranges of 3.0x – 5.0x 2020E EBITDA, 3.0x – 5.0x 2021E EBITDA, $2.50 – $3.50 per Boe of proved reserves, $20,000 – $25,000 per Boepd of 2020E production and $20,000 – $25,000 per Boepd of 2021E production.

The trading multiples for each company as well as the minimum, mean, median and maximum trading multiples for the Contango peer group are set forth below.

Contango Peer Group

 

Company   Market
Value/’20E
Disc. Cash
Flow
    Market
Value/’21E
Disc. Cash
Flow
    Enterprise
Value/’20E
EBITDA
    Enterprise
Value/’21E
EBITDA
    Enterprise
Value/Proved
Reserves
($/Boe)
    Enterprise
Value/’20E
Production
($/Boepd)
    Enterprise
Value/’21E
Production
($/Boepd)
 

Amplify Energy Corp.

    0.5x       1.0x       3.6x       5.1x     $ 1.71     $ 10,480     $ 12,318  

Bonanza Creek Energy, Inc.

    2.7x       2.8x       2.9x       2.9x     $ 3.71     $ 18,433     $ 18,010  

Earthstone Energy, Inc.

    1.3x       1.6x       2.5x       3.0x     $ 3.57     $ 24,460     $ 24,996  

SandRidge Energy, Inc.

    3.4x       0.6x       3.1x       1.0x     $ 1.39     $ 6,090     $ 6,681  

Talos Energy, Inc.

    1.5x       1.3x       3.5x       3.2x     $ 6.95     $ 27,782     $ 23,068  

W&T Offshore, Inc.

    3.5x       2.1x       6.8x       4.9x     $ 5.64     $ 21,964     $ 20,579  

Apache Corporation

    2.5x       2.0x       6.8x       5.6x     $ 13.64     $ 32,727     $ 37,071  

Hess Corporation

    6.3x       7.8x       8.8x       10.1x     $ 16.59     $ 59,636     $ 63,105  

Murphy Oil Corporation

    1.7x       1.7x       3.9x       4.5x     $ 5.42     $ 26,212     $ 28,221  

 

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Minimum, Mean, Median, Maximum Multiples

   Minimum      Mean      Median      Maximum  

Market Value/2020E Discretionary Cash Flow

     0.5x        2.6x        2.5x        6.3x  

Market Value/2021E Discretionary Cash Flow

     0.6x        2.3x        1.7x        7.8x  

Enterprise Value/2020E EBITDA

     2.5x        4.6x        3.6x        8.8x  

Enterprise Value/2021E EBITDA

     1.0x        4.5x        4.5x        10.1x  

Enterprise Value/Proved Reserves ($/Boe)

   $ 1.39      $ 6.51      $ 5.42      $ 16.59  

Enterprise Value/2020E Production ($/Boepd)

   $ 6,090      $ 25,310      $ 24,460      $ 59,636  

Enterprise Value/2021E Production ($/Boepd)

   $ 6,681      $ 26,005      $ 23,068      $ 63,105  

Based upon its review of the Contango peer group and its judgment of the comparability of each peer considering size, asset location, commodity mix and other factors, Petrie Partners selected market value multiple ranges for Contango of 2.5x – 3.5x 2020E discretionary cash flow and 2.0x – 3.0x 2021E discretionary cash flow and enterprise value multiple ranges of 3.5x – 5.0x 2020E EBITDA, 4.5x – 6.0x 2021E EBITDA, $3.00 – $6.50 per Boe of proved reserves, $15,000 – $25,000 per Boepd of 2020E production and $20,000 – $25,000 per Boepd of 2021E production.

From the enterprise value reference range implied by each metric, Petrie Partners determined an enterprise reference value range of $75 million to $90 million for Mid-Con and $225 million to $275 million for Contango. Petrie Partners then adjusted for long-term debt and net working capital as of June 30, 2020 and for Contango only, Contango’s interest in Exaro to determine an implied equity reference value range of $0.68 to $1.71 per unit of Mid-Con common equity and $0.97 to $1.28 per share of Contango common equity.

Petrie Partners divided the lowest Mid-Con per unit implied equity value by the highest Contango per share implied equity value, and vice versa, to determine a range of implied exchange ratios of 0.5296 to 1.7699 shares of Contango common stock per unit of Mid-Con common equity.

Going Concern Analysis

Petrie Partners received certain financial and operating forecasts from Mid-Con and Contango. These forecasts were prepared and provided by the respective management and staff of Mid-Con and Contango regarding Mid-Con’s and Contango’s potential future financial and operating performance. Using such financial and operating forecasts, Petrie Partners analyzed the potential standalone financial performance of Mid-Con and Contango, without giving effect to the proposed merger, for the period spanning July 1, 2020 to December 31, 2022. The analysis was performed under four separate oil and gas pricing scenarios. One scenario was based on NYMEX strip pricing as of October 23, 2020 for 2020 through 2022. Benchmark prices for the other three scenarios were based on $40.00, $50.00 and $60.00 per barrel of oil, respectively, and $2.00, $2.50 and $3.00 per MMBtu for gas, respectively and held flat.

For Mid-Con, Petrie Partners applied terminal EBITDA multiples of 3.5x, 4.5x and 5.5x to estimated 2022 EBITDA, adjusted for estimated net working capital as of December 31, 2022 and assumed discount rates of 12.5% to 17.5%. The discount rates are based on estimates of the weighted average cost of capital of Mid-Con derived using the capital asset pricing model, or CAPM. From the enterprise reference values implied by this analysis, Petrie Partners then adjusted for long-term debt as of June 30, 2020, as provided in Mid-Con’s Quarterly Report on Form 10-Q for the fiscal period ended June 30, 2020, to determine a composite per unit equity reference value range of $0.50 to $3.00 per unit of Mid-Con common equity.

For Contango, Petrie Partners applied terminal EBITDA multiples of 4.0x, 5.0x and 6.0x to estimated 2022 EBITDA, adjusted for estimated net working capital as of December 31, 2022 and assumed discount rates of 10.0% to 15.0%. The discount rates are based on estimates of the weighted average cost of capital of Contango derived using the capital asset pricing model, or CAPM. From the enterprise reference values implied by this analysis, Petrie Partners then adjusted for long-term debt as of June 30, 2020, as provided in Contango’s Quarterly Report on Form 10-Q for the fiscal period ended June 30, 2020, to determine a composite per share equity reference value range of $1.00 to $2.00 per share of Contango common equity.

 

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Petrie Partners divided the lowest Mid-Con per unit implied equity value by the highest Contango per share implied equity value, and vice versa, to determine a range of implied exchange ratios of 0.2500 to 3.0000 shares of Contango common stock per unit of Mid-Con common equity.

Miscellaneous

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by Petrie Partners. In connection with the review of the merger by the Mid-Con conflicts committee, Petrie Partners performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Petrie Partners’ opinion. In arriving at its fairness determination, Petrie Partners considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Petrie Partners made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Petrie Partners may have given various analyses and factors more or less weight than other analyses and factors and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Petrie Partners with respect to the actual equity value of Mid-Con or Contango. No company reviewed or considered in the above analyses for comparison purposes is directly comparable to Mid-Con or Contango, and no transaction reviewed or considered in the above analyses is directly comparable to the merger. Furthermore, Petrie Partners’ analyses involved complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or other values of the companies or transactions used, including judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Mid-Con and its advisors.

Petrie Partners prepared these analyses solely for the purpose of rendering an opinion to the Mid-Con conflicts committee as to the fairness, from a financial point of view, of the merger consideration to be received by the unaffiliated public unitholders pursuant to the merger agreement. These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Petrie Partners’ analyses are inherently subject to substantial uncertainty, and Petrie Partners assumes no responsibility if future results are materially different from those forecasted in such estimates.

The merger consideration was determined through arm’s-length negotiations between representatives of the Mid-Con conflicts committee and Contango and was approved by the Mid-Con conflicts committee. Petrie Partners provided advice to the Mid-Con conflicts committee during these negotiations. Petrie Partners did not, however, recommend any specific per unit equity value to the Mid-Con conflicts committee or advise that any specific merger consideration constituted the only appropriate consideration for the merger. Petrie Partners’ opinion to the Mid-Con conflicts committee was one of many factors taken into consideration by the Mid-Con conflicts committee in deciding to approve the merger.

Mid-Con engaged Petrie Partners to act as financial advisor based on its qualifications, experience and reputation. Petrie Partners is a nationally recognized investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, competitive divestiture processes, private placements and other purposes.

Pursuant to Petrie Partners’ engagement letter with Mid-Con, Petrie Partners provided the Mid-Con conflicts committee financial advisory services and rendered a fairness opinion in connection with the merger.

 

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Pursuant to its engagement letter, Petrie Partners received a work fee of $100,000. Petrie Partners also received an opinion fee of $1,000,000 upon the rendering of its fairness opinion to the Mid-Con conflicts committee (and would have received this fee regardless of the conclusions expressed therein). Petrie Partners is also entitled to a transaction fee of $1,500,000 payable upon closing of the merger, against which the opinion fee is creditable. In addition, Mid-Con has agreed to reimburse Petrie Partners for certain of its expenses, including attorney’s fees and disbursements, and to indemnify Petrie Partners and related persons against various liabilities.

Interests of Certain Mid-Con Directors and Executive Officers in the Merger

In considering the recommendation of the Mid-Con conflicts committee and the Mid-Con board, Mid-Con common unitholders should be aware that the directors and executive officers of Mid-Con GP may have interests in the merger and related transactions that are different from, or in addition to, the interests of Mid-Con unitholders generally. With respect to at least some of the directors and executive officers, these interests include, but are not limited to, positions as officers of Contango and their respective affiliates; the treatment in the merger of Mid-Con phantom units held by Mid-Con directors; equity holdings in Mid-Con and Contango; and rights to ongoing indemnification and insurance coverage. These interests are described in more detail below.

The members of the Mid-Con conflicts committee were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, in approving the merger and in determining to recommend to the Mid-Con board that they the approve the merger agreement and the transactions contemplated thereby. Mid-Con common unitholders should take these interests into account in deciding whether to consent to the Mid-Con merger proposal.

The directors and executive officers of Mid-Con GP, in their capacity as such, do not have interests in the merger and related transactions that are different from, or in addition to, the interests of Mid-Con unitholders generally.

As described below in the section titled “The Merger Agreement—Treatment of Mid-Con Phantom Units,” any Mid-Con phantom unit will automatically be converted into the right to receive a number of shares of Contango common stock equal to the product of (i) the number of Mid-Con common units subject to such award as of immediately prior to the effective time and (ii) the exchange ratio, with cash paid (without interest, rounded to the nearest cent) in lieu of the issuance of fractional shares, if any.

The table below sets forth the number of Mid-Con phantom units held by the members of the Mid-Con board as of November 19, 2020, which will be automatically canceled at the effective time of the merger in exchange for the equity compensation described above.

 

Non-Executive Directors (1)

   Number of
Phantom Units (2)
 

Bob Boulware

     63,000  

Fred Reynolds

     52,000  

Caperton White

     52,000  

Travis Goff

     41,000  

 

(1)

No executive officer of Mid-Con currently holds Mid-Con phantom units.

(2)

The Mid-Con phantom unit awards are subject to the approval of the amended and restated LTIP by a majority of the Mid-Con unitholders. Failure to obtain the requisite approval prior to the effective time of the merger would result in the cancellation of the Mid-Con phantom units for no consideration.

Certain members of the Mid-Con board have relationships with Contango. Through their relationships with these entities and otherwise, certain of these directors hold equity interests in Contango. Holding these equity interests in Contango, which is a counterparty with economic interests adverse to Mid-Con in certain of the transactions contemplated by the merger agreement, gives such members of the Mid-Con board interests in the merger and related transactions that are different from the interests of Mid-Con unitholders generally. Set forth in

 

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the table below is the number of shares of Contango common stock and Mid-Con common units beneficially owned by each of the current directors of Mid-Con GP as of November 19, 2020.

 

Name

   Mid-Con Common
Units Beneficially
Owned
            Contango Common
Stock Beneficially
Owned
 

Bob Boulware

     63,000        (a      —    

Fred Reynolds

     81,939        (b      10,000  

Caperton White

     52,000        (c      1,500  

Travis Goff

     41,000        (d      —    

 

(a)

Includes 63,000 phantom units which will vest upon the closing of the merger, provided that the amended and restated LTIP is approved.

(b)

Includes 52,000 phantom units which will vest upon the closing of the merger, provided that the amended and restated LTIP is approved.

(c)

Includes 52,000 phantom units which will vest upon the closing of the merger, provided that the amended and restated LTIP is approved.

(d)

Includes 41,000 phantom units which will vest upon the closing of the merger, provided that the amended and restated LTIP is approved.

Board of Directors and Management of Contango Following Completion of the Merger

Upon completion of the merger, the current directors and executive officers of Contango are expected to continue in their current positions, other than for changes that may be publicly announced by Contango in the future in the normal course.

Material U.S. Federal Income Tax Consequences of the Merger

The following is a discussion of certain material U.S. federal income tax consequences to U.S. holders (as defined below) of the merger and of owning and disposing of Contango common stock received in the merger. This discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury regulations (the “Treasury Regulations”) promulgated under the Code and current administrative rulings and court decisions, all of which are subject to change, possibly with retroactive effect. Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. No ruling has been or is expected to be sought from the Internal Revenue Service (the “IRS”) with respect to any of the tax consequences discussed below. As a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below.

This discussion is limited to U.S. holders of Mid-Con common units that hold their Mid-Con common units, and will hold their Contango common stock, if any, received in the merger, as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax or the alternative minimum tax, nor does it address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to income taxes. Furthermore, this discussion does not address all aspects of U.S. federal income taxation that may be applicable to U.S. holders in light of their particular circumstances or to U.S. holders subject to special treatment under U.S. federal income tax laws, including, without limitation:

 

   

a bank, insurance company or other financial institution;

 

   

a tax-exempt organization;

 

   

a real estate investment trust;

 

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an S corporation or other pass-through entity (or an investor in an S corporation or other pass-through entity);

 

   

a regulated investment company or a mutual fund;

 

   

a “controlled foreign corporation” or a “passive foreign investment company”;

 

   

a dealer or broker in stocks and securities, or currencies;

 

   

a trader in securities that elects mark-to-market treatment;

 

   

a holder of Mid-Con common units that received such common units through the exercise of an employee option, pursuant to a

 

   

retirement plan or otherwise as compensation;

 

   

holders of options, or holders of restricted units or bonus units, granted under any Mid-Con benefit plan;

 

   

a person whose functional currency is not the U.S. dollar;

 

   

a holder of Mid-Con common units that holds such Mid-Con common units as part of a hedge, straddle, conversion or other “synthetic security” or integrated transaction; or

 

   

a U.S. expatriate.

If a partnership, or an entity treated as a partnership for U.S. federal income tax purposes, holds Mid-Con common units, the tax treatment of a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. A partner in a partnership holding Mid-Con common units should consult its own tax advisor.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Mid-Con common units or Contango common stock that is for U.S. federal income tax purposes:

 

   

an individual citizen or resident of the United States;

 

   

a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

   

a trust if (i) a U.S. court is able to exercise primary supervision over the trust’s administration and one or more United States persons (as defined in the Code) are authorized to control all substantial decisions of the trust or (ii) the trust has a valid election in effect under applicable Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes; or

 

   

an estate, the income of which is subject to U.S. federal income tax regardless of its source.

THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND IS NOT A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER OR THE RECEIPT, OWNERSHIP AND DISPOSITION OF CONTANGO COMMON STOCK, IF ANY, RECEIVED IN THE MERGER. EACH HOLDER OF MID-CON COMMON UNITS IS STRONGLY URGED TO CONSULT WITH AND RELY UPON ITS OWN TAX ADVISOR AS TO THE SPECIFIC FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER AND THE RECEIPT, OWNERSHIP AND DISPOSITION OF CONTANGO COMMON STOCK, IF ANY, RECEIVED IN THE MERGER, TAKING INTO ACCOUNT ITS OWN PARTICULAR CIRCUMSTANCES.

 

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Tax Consequences of the Merger to U.S. Holders of Mid-Con Common Units

Tax Characterization of the Merger.

The receipt of Contango common stock, cash or a combination of Contango common stock and cash in exchange for Mid-Con common units pursuant to the merger will be a taxable transaction to U.S. holders for U.S. federal income tax purposes. In general, the merger will be treated as a taxable sale of a U.S. holder’s Mid-Con common units in exchange for Contango common stock, cash or a combination of Contango common stock and cash received in the merger.

Amount and Character of Gain or Loss Recognized.

A U.S. holder who receives Contango common stock, cash or a combination of Contango common stock and cash in exchange for Mid-Con common units pursuant to the merger will recognize gain or loss in an amount equal to the difference between (i) the sum of (A) the amount of any cash received, (B) the fair market value of any Contango common stock received, and (C) such U.S. holder’s share of Mid-Con’s nonrecourse liabilities immediately prior to the merger and (ii) such U.S. holder’s adjusted tax basis in the Mid-Con common units exchanged therefor.

A U.S. holder’s initial tax basis in its Mid-Con common units would have been equal the amount such holder paid for the Mid-Con common units plus the U.S. holder’s initial share of Mid-Con’s nonrecourse liabilities. Over time that basis would have (i) increased by the U.S. holder’s share of Mid-Con’s income and by any increases in the U.S. holder’s share of Mid-Con’s nonrecourse liabilities, and (ii) decreased, but not below zero, by distributions from Mid-Con, by the U.S. holder’s share of Mid-Con’s losses, by any decreases in the U.S. holder’s share of Mid-Con’s nonrecourse liabilities and by the U.S. holder’s share of Mid-Con’s expenditures that are not deductible in computing taxable income and are not required to be capitalized. Except as noted below, gain or loss recognized by a U.S. holder on the exchange of Mid-Con common units in the merger will generally be taxable as capital gain or loss. However, a portion of this gain or loss, which portion will likely be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to assets giving rise to depreciation recapture, depletion recapture or other “unrealized receivables” or to “inventory items” owned by Mid-Con and its subsidiaries. The term “unrealized receivables” includes potential recapture items, including depreciation recapture. Ordinary income attributable to unrealized receivables, inventory items and depreciation recapture may exceed net taxable gain realized upon the exchange of a Mid-Con common unit pursuant to the merger and may be recognized even if there is a net taxable loss realized on the exchange of such U.S. holder’s Mid-Con common units pursuant to the merger. Consequently, a U.S. holder may recognize both ordinary income and capital loss upon the exchange of Mid-Con common units in the merger.

Capital gain or loss recognized by a U.S. holder will generally be long-term capital gain or loss if the U.S. holder has held its Mid-Con common units for more than twelve months as of the effective time of the merger. If the U.S. holder is an individual, such long-term capital gain will generally be eligible for reduced rates of taxation. Capital losses recognized by a U.S. holder may offset capital gains and, in the case of individuals, no more than $3,000 of ordinary income. Capital losses recognized by U.S. holders that are corporations may be used to offset only capital gains.

The amount of gain or loss recognized by each U.S. holder in the merger will vary depending on each U.S. holder’s particular situation, including the amount of the cash and/or the value of the Contango common stock received by each U.S. holder in the merger, the adjusted tax basis of the Mid-Con common units exchanged by each U.S. holder in the merger, and the amount of any suspended passive losses that may be available to a particular unitholder to offset a portion of the gain recognized by each U.S. holder. Passive losses that were not deductible by a U.S. holder in prior taxable periods because they exceeded a U.S. holder’s share of Mid-Con’s income may be deducted in full upon the U.S. holder’s taxable disposition of its entire investment in Mid-Con pursuant to the merger. Each U.S. holder is strongly urged to consult its own tax advisor with respect to the specific tax consequences to them of the merger, taking into account its own particular circumstances.

 

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Mid-Con Items of Income, Gain, Loss and Deduction for the Taxable Period Ending on the Date of the Merger.

U.S. holders of Mid-Con common units will be allocated their share of Mid-Con’s items of income, gain, loss and deduction for the taxable period of Mid-Con ending on the date of the merger. These allocations will be made in accordance with the terms of the Mid-Con partnership agreement. A U.S. holder will be subject to U.S. federal income taxes on any such allocated income and gain even if such U.S. holder does not receive a cash distribution from Mid-Con attributable to such allocated income and gain. Any such income and gain allocated to a U.S. holder will increase the U.S. holder’s tax basis in the Mid-Con common units held and, therefore, will reduce the gain, or increase the loss, recognized by such U.S. holder resulting from the merger. Any losses or deductions allocated to a U.S. holder will decrease the U.S. holder’s tax basis in the Mid-Con common units held and, therefore, will increase the gain, or reduce the loss, recognized by such U.S. holder resulting from the merger.

Tax Basis and Holding Period in Contango common stock Received in the Merger.

A U.S. holder’s tax basis in the shares of Contango common stock, if any, received in the merger will equal the fair market value of such shares. A U.S. holder’s holding period in the shares of Contango common stock, if any, received in the merger will begin on the day after the date of the merger.

Tax Consequences to U.S. Holders of Owning and Disposing of Shares of Contango Common Stock Received in the Merger

Distributions on Contango common stock.

For U.S. federal income tax purposes, distributions of cash by Contango to a U.S. holder with respect to shares of Contango common stock will generally be included in a U.S. holder’s income as ordinary dividend income to the extent of Contango’s current and accumulated “earnings and profits” as determined under U.S. federal income tax principles. A portion of the cash distributed to Contango shareholders by Contango may exceed Contango’s current and accumulated earnings and profits. Distributions of cash in excess of Contango’s current and accumulated earnings and profits will be treated as a non-taxable return of capital reducing a U.S. holder’s adjusted tax basis in such U.S. holder’s shares of Contango common stock and, to the extent the distribution exceeds such U.S. holder’s adjusted tax basis, as capital gain from the sale or exchange of such shares of Contango common stock. Dividends received by a corporate U.S. holder may be eligible for a dividends received deduction, subject to applicable limitations. Dividends received by an individual U.S. holder may be taxed at the lower applicable long-term capital gains rate if such dividends are treated as “qualified dividend income” for U.S. federal income tax purposes.

Sale, Exchange, Certain Redemptions or Other Taxable Dispositions of Contango common stock.

Upon the sale, exchange, certain redemptions or other taxable dispositions of Contango common stock, a U.S. holder will generally recognize capital gain or loss equal to the difference between (i) the amount of cash and the fair market value of any other property received upon such taxable disposition of shares of Contango common stock and (ii) the U.S. holder’s adjusted tax basis in such shares of Contango common stock. Such capital gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period in the shares of Contango common stock disposed of is more than twelve months at the time of such taxable disposition. Long-term capital gains of non-corporate taxpayers are generally taxed at reduced rates. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding

Information returns may be required to be filed with the IRS in connection with the merger and in connection with distributions made with respect to, or dispositions of, Contango common stock received in the

 

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merger. A U.S. holder may be subject to U.S. backup withholding on payments made pursuant to the merger or on distributions made with respect to, or on payments made pursuant to dispositions of, Contango common stock received in the merger unless such holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies with the applicable requirements of the backup withholding rules. Any amount withheld under the U.S. backup withholding rules is not an additional tax and will generally be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability provided that the required information is timely furnished to the IRS.

Accounting Treatment of the Merger

Contango prepares its financial statements in accordance with GAAP. The merger will be accounted for as a business combination, using the acquisition method of accounting with Contango being considered the acquirer of Mid-Con for accounting purposes. This means that Contango will record all assets acquired and liabilities assumed from Mid-Con at their acquisition date fair values at the effective date of the merger.

Regulatory Approvals

Securities and Exchange Commission

In connection with the Contango share issuance, Contango has filed a registration statement on Form S-4, of which this joint consent statement/information statement/prospectus is a part, with the SEC under the Securities Act pursuant to which the issuance of shares of Contango common stock issuable upon the effective time will be registered with the SEC.

NYSE American

In addition, the completion of the merger is subject to approval for listing of the shares of Contango common stock to be issued in the merger on the NYSE American, subject to official notice of issuance.

Exchange of Shares

For information on the exchange of Mid-Con common units for the merger consideration, please see the section entitled “The Merger Agreement—Exchange and Payment Procedures.”

Treatment of Indebtedness

As of September 30, 2020, Mid-Con had outstanding $69.7 million of borrowings and $1.0 million of letters of credit under its existing credit facility. The amount of indebtedness under the existing credit facility at the effective time may be significantly more or less than the above listed amounts. In connection with the consummation of the merger, Contango will fully repay the outstanding borrowings and terminate all outstanding commitments under the Mid-Con credit facility. Pursuant to the third amendment to Contango’s credit agreement, upon the closing of the merger and completion of certain other conditions, the borrowing base under the credit agreement will increase to $130.0 million, and Contango will use expanded borrowing base to fund the repayment of the Mid-Con credit facility.

For a description of Mid-Con’s existing credit facility, see Mid-Con’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 attached as Annex E to this joint consent statement/information statement/prospectus.

Treatment of Mid-Con Phantom Units

Each Mid-Con phantom unit that is outstanding as of immediately prior to the effective time will fully vest immediately prior to the effective time. At the effective time, each such award will be cancelled and converted

 

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into the right to receive a number of shares of Contango common stock equal to the product of (i) the number of Mid-Con common units subject to such award as of immediately prior to the effective time and (ii) the exchange ratio, with cash paid (without interest, rounded to the nearest cent) in lieu of the issuance of fractional shares, if any.

Listing of Contango Common Stock; Delisting and Deregistration of Mid-Con Common Units

It is a condition to the consummation of the merger that the shares of Contango common stock issuable to Mid-Con unitholders in connection with the merger be approved for listing on the NYSE American, subject to official notice of issuance.

Mid-Con common units currently trade on the Nasdaq under the stock symbol “MCEP.” When the merger is completed, Mid-Con will cease to exist and the Mid-Con common units will cease to be traded on the Nasdaq and will be deregistered under the Exchange Act.

Appraisal Rights and Dissenters’ Rights

Contango

Contango shareholders are not entitled to appraisal rights or dissenters’ rights in connection with the issuance of shares of Contango common stock as contemplated by the merger agreement.

Mid-Con

Holders of Mid-Con common units are not entitled to appraisal rights or dissenters’ rights in connection with the merger under Delaware law.

Litigation Related to the Merger

Following the filing of the preliminary joint consent statement/information statement/prospectus on November 23, 2020, one complaint has been filed with respect to the merger as of December 4, 2020 in the United States District Court for the District of Delaware, captioned as Stein v. Mid-Con Energy Partners, LP et al, No. 1:20-cv-01601-UNA (D. Del.). The unitholder action was filed by a purported Mid-Con unitholder and names Mid-Con and members of the Mid-Con board as defendants.

The unitholder action generally alleges a purported failure to disclose material information related to the financial projections of Contango’s and Mid-Con’s management and the financial analyses of Mid-Con’s financial advisor. The unitholder action alleges that the defendants violated Section 14(a) of the Exchange Act and Rule 14a-9 by making inadequate or misleading disclosures and alleges that the individual Mid-Con board members are liable under Section 20(a) of the Exchange Act. The unitholder action seeks, among other things, to enjoin the consummation of the merger unless and until the defendants disclose the material information that was allegedly omitted from the preliminary joint consent statement/information statement/prospectus and to rescind the merger agreement (to the extent already implemented) or grant an award of rescissory damages. The unitholder action also seeks payment of attorneys’ and expert fees and expenses.

The unitholder action is at a preliminary stage and the defendants have not yet answered or otherwise responded to the complaint. Contango and Mid-Con believe that the claims asserted in the unitholder action are meritless, but cannot currently reasonably predict the outcome of or reasonably estimate the possible loss, if any, or range of loss from this lawsuit.

 

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THE MERGER AGREEMENT

The following describes the material provisions of the merger agreement, which is attached as Annex A to this joint consent statement/information statement/prospectus and incorporated by reference herein. The summary of the material provisions of the merger agreement below and elsewhere in this joint consent statement/information statement/prospectus is qualified in its entirety by reference to the merger agreement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. Contango and Mid-Con encourage you to read carefully the merger agreement in its entirety before making any investment decisions as it is the principal legal document governing the business combination between Contango and Mid-Con described in this joint consent statement/information statement/prospectus. This section is only intended to provide you with information regarding the terms of the merger agreement. Neither Contango nor Mid-Con intends that the merger agreement will be a source of business or operational information about Contango or Mid-Con. Accordingly, the representations, warranties, covenants and other agreements in the merger agreement should not be read alone, and you should read the information provided elsewhere in this joint consent statement/information statement/prospectus and in the public filings Contango and Mid-Con make with the SEC, as described in “Where You Can Find More Information.”

Explanatory Note Regarding the Merger Agreement