Contango Oil & Gas will purchase all Wyoming natural gas assets owned by ConocoPhillips, the company revealed Thursday. The acquisition comes as ConocoPhillips moves to sell off some of its oil and gas assets and Contango looks to continue expanding its operations in Wyoming.
The $67 million deal will transfer approximately 446 billion cubic feet equivalent of proved, developed and producing reserves in the Wind River Basin to Contango, a Houston-based oil and gas company. It’s expected to be finalized in the next few months.
“Our business model is really centered around these types of assets that are later in life and lower decline, better predictability, that generate a good amount of cash flow, but without a lot of the reinvestment risk that’s inherent in drilling,” said Contango CEO Wilkie S. Colyer, Jr.
The sale includes all assets in the Wind River Basin owned by ConocoPhillips, one of the largest U.S. oil and gas producers.
“ConocoPhillips has a strong position in the Wind River Basin, but the assets are not competitive in attracting capital in our portfolio,” a company spokesperson wrote in an email to the Star-Tribune.
The Wyoming wells purchased by Contango have a net production rate of about 78 million cubic feet of natural gas equivalent per day, and have a relatively low expected decline rate of 5% per year over the next five years — factors Colyer said make the acquisition a lower-risk investment for the company.
“You’re buying wells that have been producing for, in some cases, 20 to 30 years, but these things have, typically, well over 50-year lives,” he said. “So you’re buying this, certainly not at the peak of its productive capacity, but at a stage where there’s still a substantial amount of cash flow that you’re generating off the assets.”
He emphasized that reclamation at the end of the wells’ productive lives is also central to the Contango business model.
Contango’s existing reserves are concentrated in Texas, New Mexico and Oklahoma. The company acquired several other Wyoming assets this year, increasing its presence from virtually no in-state employees to close to 100 before the ConocoPhillips deal. Colyer said the state’s plentiful natural gas supply and friendliness to the industry make it an attractive place to do business.
Last month, in a move Colyer said was unrelated to the natural gas acquisition, Contango announced a merger with Independence Energy, an oil and gas company managed by investment firm KKR & Co. Inc.