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Contango enters into agreement to purchase Southern Delaware Basin acreage

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Oilfield Technology,

Contango Oil & Gas Company (NYSE MKT:MCF) has announced that it has entered into an agreement with a private oil and gas company to purchase one-half of seller’s interests in approximately 12 100 gross undeveloped acres (~5000 net acres) for up to US$25 million in the Southern Delaware Basin of Texas, currently one of the most active and economically attractive oil and gas basins in the United States.

The purchase price is comprised of US$10 million in cash at initial closing and US$10 million in carried well costs expected to be paid over the next 14 months. Certain additional contingent payments upon success would increase total consideration to US$25 million. The purchase is subject to finalisation of title due diligence and customary closing conditions and adjustments with an initial closing expected later this month. Specifics of the purchased acreage are as follows:

  • Located in western Pecos County, Texas.
  • Primary focus is three benches (Wolfcamp A, Wolfcamp B and emerging Bone Springs formations), all of which have proven to be productive in the area by offset operators, thereby providing us with the equivalent of 36 000 'effective' gross acres over the three formations.
  • Average Wolfcamp interval of approximately 400 feet and Bone Springs interval of approximately 2000 ft.
  • Acquiring operated average working interests of approximately 41% (32% net revenue interest).
  • 157 gross potential locations spread over the three potential formations that are estimated to generate average individual well returns of 54%, at current strip prices and current estimated drilling and completion costs using internally estimated average production type curves based on offset operations data and assuming drilling of 10 000 foot laterals.
  • Additional upside exists in future downspacing and additional zones being delineated within the thick Bone Springs section and/or Middle and Lower Wolfcamp intervals.
  • Acreage is adjacent to and surrounded by current horizontal Wolfcamp activity.
  • Active offset operators included Samson Oil & Gas, J. Cleo Thompson, Brigham Exploration, and Concho Resources, among others.
  • Existing infrastructure in place to service development of asset.
  • No significant near term expirations.
  • Drilling of initial wells is expected to commence as soon as practical after closing.

  • Allan D. Keel, the company’s President and Chief Executive Officer, said:

    “We are pleased to be in one of the premier oilfields in North America. This new Permian presence provides a multi-year inventory across a stacked pay formation that we expect to commence drilling in September or October of this year with our existing staff. The unique deal structure of part cash, part carry and part success fee gives us some financial flexibility and allows us to grow production, cash flow and reserves through a capital programme that is expected to be funded with internally generated cash flow. As we grow and develop our Permian asset, we will continue to focus on maintaining our strong balance sheet and financial flexibility.”

    Adapted from a press release by Louise Mulhall

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