By July 22, 2016 Read More →

Contango purchases Southern Delaware Basin acreage for $25 million

Acreage located in western Pecos County, Texas, with 157 potential well locations

ContangoHOUSTON, Texas – Contango Oil & Gas Company says that it has an agreement with a private oil and gas company to purchase one-half of the seller’s interests in approximately 12,100 gross undeveloped acres for up to $25 million in the Southern Delaware Basin of Texas.

The Delaware basin is one of the most active and economically attractive oil and gas basins in the US.

The purchase price is comprised of $10 million in cash at closing, and $10 million in carried well costs expected to be paid over the next 14 months, with certain other conditions bringing total to $25 million according to a press release.

The purchase is subject to finalization of title due diligence and customary closing conditions and adjustments with an initial closing expected later this month.

“We are pleased to be in one of the premier oil fields 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,” said Allan D. Keel, Contago’s CEO.

Contango also announced the launch of an underwritten public offering of 5,000,000 shares of its common stock. The underwriters will have an option to purchase up to an additional 750,000 shares of common stock from the company.

The public offering is intended in part to fund the purchase of the acreage, with gross proceeds of $50 million from the offering.

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 2,000 feet.
  • Acquiring operated average working interests of approximately 41 per cent (32 per cent net revenue interest).
  • 157 gross potential locations spread over the three potential formations that are estimated to generate average individual well returns of 54 per cent, 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.

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