Contango Oil & Gas Company has entered into a definitive agreement with Petrohawk Energy Corporation to sell the entire Western core of its Arkansas Fayetteville Shale properties (approximately 14,200 acres, net to Contango) for approximately $200 million. The sale is expected to close in December 2007 and is subject to customary closing conditions and adjustments.
Contango and its partners have agreed to sell 24,078 acres for $343 million. Gross production is currently 60 million cubic feet per day (“Mmcf/d”) (approximately 6 Mmcf/d net to Contango). The sale is part of the Company’s previously announced review of strategic alternatives to enhance shareholder value. Contango and its partners will continue to own approximately 20,000 acres (approximately 11,200 acres, net to Contango) in the Eastern core of the Arkansas Fayetteville Shale play on which Contango and its partners have interests in approximately 30 producing wells and numerous drilling locations.
Contango has a 70% interest in its Fayetteville Shale play prior to a basket project payout. After project payout of approximately $47 million, net to Contango, which will occur as a result of this sale, Alta Resources LLC (“Alta”) will be assigned a 20% reversionary interest. Contango will have a 56% interest in the Eastern core of its Fayetteville Shale properties, which are not part of the current sale transaction.
The definitive agreement executed with Petrohawk contains customary terms and closing conditions for transactions of this type. The sale will be effective October 1, 2007. Merrill Lynch & Co. acted as marketing and financial advisor to Contango and its partners in connection with the sale.
Kenneth R. Peak, the Company’s Chairman and Chief Executive Officer, said, “Contango will seek to use the proceeds from this sale, assuming successful completion, to finance the purchase of producing properties utilizing a like-kind exchange structure. Alta has done a tremendous job and I would like to thank them on behalf of all Contango shareholders.”
