Houston-based independent Contango Oil & Gas Co. has secured an agreement with long-time partner Juneau Oil & Gas LLC to develop some prospects in the shallow waters of the Gulf of Mexico (GOM).
The joint development agreement (JDA) gives Contango the right to acquire an interest in all of Juneau’s prospects on the Outer Continental Shelf for an aggregate $6.0 million, consisting of $1.69 million in cash and $4.31 million in stock.
Juneau has “a long history of successful prospect generation, including discovering the Dutch and Mary Rose field, which continues to be an important contributor to Contango’s reserves and cash flow even today,” said Contango CEO Wilkie S. Colyer. The field, discovered in 2007, is Eugene Island Block offshore.
Even with the additional GOM prospecting, “this will not distract or deter us from continuing to look for distressed, onshore, proved developed producing and cash-flow heavy assets to acquire, but it instead complements that strategy quite well in our opinion…”
“Contango and Juneau made several notable discoveries from inception, highlighted by the discovery of the Gulf of Mexico field Dutch Mary Rose that Wilkie referenced,” Juneau said. “As a demonstration of our faith in his team, we have taken most of our upfront reimbursement in Contango stock and not cash.”
The first joint prospect, Iron Flea, is in the Grand Isle Block 45 area, which could have reserves potential of 19 million boe net to Contango. The company has elected to acquire 85-90% of Juneau’s working interest in prospect, with drilling expected to begin in 2Q2020.
“Should our initial test well prove successful and the production levels reach what we currently expect, we believe the Iron Flea economics rival any play in the onshore United States,” Colyer said.
Contango also may acquire an interest in future Juneau-generated GOM prospects under similar terms to the Iron Flea deal. Juneau agreed to deliver to Contango at least 80% net revenue interest on all future acquired prospects.
Willkie Farr & Gallagher LLP acted as Contango’s legal adviser in connection with the JDA.