Going, going, gone: Another public oil and gas operator in Oklahoma announces merger plans
TULSA — Another Oklahoma-based oil and gas company is on its way to being gone.
In a move one analyst expects to see more of, Mid-Con Energy Partners announced Monday it is merging with Contango Oil & Gas.
The Fort Worth, Texas-based Contango will assume ownership of Mid-Con’s assets as part of an all-stock deal valued at $400 million that’s expected to close by early next year.
Contango officials said the deal benefits their company because it increases its exposure to proved-developed oil reserves at an attractive price, reduces its costs and provides Mid-Con’s investors with greater liquidity, financial stability and future growth opportunities.
The announcement comes about 60 days after Mid-Con issued “going concern” language in a quarterly filing it made in August.
Then, Mid-Con officials stated its ability to operate into the future would depend on whether or not it could successfully renegotiate its revolving credit agreement.
“There can be no assurance, however, that such discussions will result in a refinancing of the credit facility on acceptable terms, if at all, or provide any specific amount of additional liquidity,” the filing stated.
In the second quarter of 2020, Mid-Con Energy Partners posted a net loss of about $11.9 million, or $2.29 per share, on total revenues of about $1.3 million.
Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, said the announcement didn’t surprise him, given both companies have been struggling of late.
“If you can merge with someone and get the cost efficiencies that come with that, you might be able to refinance some credit lines. It is a smart business move for companies that couldn’t do it on their own.”
More to come
Dollarhide noted Monday that the Mid-Con and Contango deal is just the latest involving numerous companies across the energy spectrum in recent years, such as the planned merger announced earlier this year by Devon Energy and WPX.
He said he believes companies still are heavily pursuing potential deals as they look for ways to either prepare themselves to flourish in the future (a good description of the Devon/WPX deal) or to hang on as long as they can until markets recover.
“You can never say never, but will we ever see natural gas prices become more valuable than $5 (per million British thermal units) in our lifetimes?" Dollarhide asked. "I think it is likely that oil will make another run at $100 a barrel in the next couple of years, but that isn’t going to help a lot of companies that are heavy natural gas producers. Buyouts have been happening for a couple of years because of those weak commodity prices, so this is a ballgame that could play out over the next six to eight years.”
Dollarhide said the nation still must do more to boost its abilities to export natural gas and oil before meaningful recovery can occur.
“Every single company except for Exxon Mobil and Chevron are hurting right now,” Dollarhide said. “That would be a huge game changer for a lot of these companies.”
Deal follows reorganization
Earlier this year, Mid-Con reorganized its ownership structure and dismissed its top executives after the size of its revolving credit facility was slashed by $31 million, from $95 million to $64 million.
To reorganize, the company converted preferred units held primarily by Goff Capital into common units that were worth $3.12 each. Goff Capital then bought out other equity owners through providing them with common unit distributions, leaving it with the ownership of the majority of the company’s outstanding common units.
As part of that restructuring, the company also replaced three of its board members and announced that Contango would step in to operate its assets.
At the end of July, it announced a new leadership team. Sherry L. Morgan was named the general partner’s new CEO, while Jodie L. DiGiacomo was named its new chief accounting officer and Greg Westfal was named its new chief operating officer.
In August, it still owed creditors about $73.3 million, and officials stated then it had established a repayment schedule to address the account’s overdrawn status.
Despite Mid-Con’s financial difficulties, the deal “is exactly the type of transaction we look for to enhance value for our shareholders in the current market,” said Wilkie Colyer, Contango’s CEO.
“We were able to substantially increase our reserve base and cash flow in an accretive transaction, while meeting the needs of Mid-Con unitholders by rationalizing their cost structure and mitigating their refinancing risk by combining our respective credit facilities.
“In that sense, this is truly a win for both parties involved in the merger.”
Mid-Con owns mature, producing oil and natural gas properties in Oklahoma and Wyoming and uses enhanced oil recovery techniques to keep the properties operating. Contango has shallow off-shore wells in the Gulf of Mexico and producing properties in Texas, Oklahoma, Louisiana and Wyoming.
Contango officials said the company will continue to maintain its headquarters in Texas, but it also intends to maintain an office in Tulsa.