Contango Oil & Gas Co. will merge with Independence Energy, LLC, an upstream oil and gas business built and managed by KKR's Energy Real Assets team.
The combined company, which will be headquartered in Houston operating under a new name and under a new ticker symbol, is expected to have an initial equity market capitalization of approximately $4.8 billion and enterprise value of approximately $5.7 billion, the companies announced June 8. The new company hopes to move its stock to the New York Stock Exchange.
KKR’s Energy Real Assets team will manage the combined company with David Rockecharlie, head of KKR Energy Real Assets, serving as CEO. Fort Worth-based investor John Goff, Contango’s chairman and largest shareholder, will be chairman of the board of directors for the combined company. Contango will remain an operating subsidiary of the combined company and will be led by existing leadership, including CEO Wilkie Colyer and President Farley Dakan, who will focus on growth via acquisitions.
“This is a very compelling merger for Contango shareholders providing substantial value accretion, significant scale and lower cost of capital. KKR’s desire to position the combined company to be their long-term primary platform to focus on continued consolidation in the industry is a testament to what the team has created at Contango. As the largest shareholder of Contango and Chairman of the new combined company, I look forward to working with David Rockecharlie and the KKR team in continuing our strategy of consolidation and industry leading performance,” said Goff.
Independence has assets across the Eagle Ford, Rockies, Permian and Mid-Continent, and Contango's assets are primarily in the Mid-Continent, Permian, and Rockies areas. The combined company's daily production is estimated to be between 108,000 and 114,000 barrels of oil equivalent per day in 2022. Its adjusted EBITDA is estimated to be between $750 million and $800 million in 2022, with unlevered free cash flow of $375 million to $400 million.
“When John and I joined Contango nearly three years ago, we believed an upstream acquisition platform focused on alignment of incentives, low costs and an investor’s mindset could generate superior shareholder returns. While we are proud of what we have accomplished to date, the opportunities to continue to scale profitably in this industry are enormous. In David’s team at KKR and Independence, we have found like-minded individuals with a scaled and complementary asset base. This partnership helps to accelerate our inorganic growth strategy with a larger balance sheet and lower cost of capital for the benefit of all stakeholders. Just as I said three years ago, I’m excited about this opportunity and ready to get to work,” said Colyer.
The transaction is expected to close late in the third quarter or early in the fourth quarter of 2021.
Jefferies LLC is serving as lead financial advisor to Contango, and Gibson, Dunn & Crutcher LLP is serving as legal counsel. Wells Fargo Securities LLC is serving as financial advisor to Independence, and Vinson & Elkins LLP is serving as legal counsel.
