Contango will become an operating subsidiary of the combined company and focus on growth via acquisitions led by Contango’s senior leadership. (Source: Hart Energy)
Independence Energy LLC and Contango Oil & Gas Co. agreed to combine on June 8 in an all-stock transaction set to create a consolidation machine for the upstream oil and gas industry.
Independence is an upstream oil and gas business built and managed by KKR’s Energy Real Assets team with a scaled portfolio of low-decline, producing assets across the Eagle Ford, Rockies, Permian and Midcontinent regions. Meanwhile, Contango, a Fort Worth, Texas-based independent oil and gas company, has positioned itself as a consolidator completing four significant acquisitions in the last 18 months.
The combined company, which will be headquartered in Houston, will become KKR’s primary platform for pursuing upstream oil and natural gas opportunities, according to a joint press release on June 8.
“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,” commented John Goff, Contango’s chairman and largest shareholder who will serve as chairman of the board of directors of the combined company.
Under the terms of the transaction agreement, Independence will merge with an operating subsidiary of a new parent company, which will become a publicly traded entity at closing. Contango will become an operating subsidiary of the combined company and focus on growth via acquisitions led by Contango’s senior leadership, including CEO Wilkie Colyer and President Farley Dakan.
“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,” Colyer commented in a statement on June 8. “While we are proud of what we have accomplished to date, the opportunities to continue to scale profitably in this industry are enormous.”
The partnership with KKR and Independence will help Contango to accelerate the company’s “inorganic growth strategy,” according to Colyer, with a larger balance sheet and lower cost of capital.
“Just as I said three years ago, I’m excited about this opportunity and ready to get to work,” he added.
Based on Contango’s closing stock price on June 7, the combined company will have an initial equity market capitalization of approximately $4.8 billion and enterprise value of approximately $5.7 billion.
The combined business, which expects to operate under a new name, will be managed by KKR’s Energy Real Assets team and led by David Rockecharlie, head of KKR Energy Real Assets who will serve as CEO. The company also intends to be listed on the New York Stock Exchange under a new ticker symbol.
In a statement on June 8 commenting on the combination, Rockecharlie said: “We see tremendous opportunity ahead to create long-term value in the energy sector. With today’s transaction, we are continuing to execute on the strategy we have been building over the last decade and look forward to working with John, Wilkie and the entire Contango team to deliver for our shareholders.”
The transaction is expected to close late in the third quarter or early in the fourth quarter of 2021, according to the company release. Upon closing, Independence shareholders will own approximately 76% of the combined company with Contango shareholders owning the remaining 24%.
As part of the transaction, KKR will also receive a special class of non-economic preferred stock that provides KKR with the authority to appoint all members of the board of directors as well as certain consent rights over specified actions including incurrence of debt, changes in officers, mergers, acquisitions and divestitures.
Jefferies LLC is lead financial adviser to Contango, with Gibson, Dunn & Crutcher LLP providing the company legal counsel. Wells Fargo Securities LLC is serving as financial adviser to Independence with Vinson & Elkins LLP as its legal counsel.
Recommended Reading
Sheffield: E&Ps’ Capital Starvation Not All Bad, But M&A Needs Work
2024-10-04 - Bryan Sheffield, managing partner of Formentera Partners and founder of Parsley Energy, discussed E&P capital, M&A barriers and how longer laterals could spur a “growth mode” at Hart Energy’s Energy Capital Conference.
Private Equity Gears Up for Big Opportunities
2024-10-04 - The private equity sector is having a moment in the upstream space.
Quantum’s VanLoh: New ‘Wave’ of Private Equity Investment Unlikely
2024-10-10 - Private equity titan Wil VanLoh, founder of Quantum Capital Group, shares his perspective on the dearth of oil and gas exploration, family office and private equity funding limitations and where M&A is headed next.
Companies Take Advantage of ABSs to Finance Acquisitions
2024-10-17 - Some companies have taken advantage of asset-backed securitizations to monetize some of their cash flows and better position themselves for a sale.
Private Producers Find Dry Powder to Reload
2024-09-04 - An E&P consolidation trend took out many of the biggest private producers inside of two years, but banks, private equity and other lenders are ready to fund a new crop of self-starters in oil and gas.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.