KKR & Co’s (KKR.N) Independence Energy LLC and Contango Oil & Gas Co (MCF.A) will merge in an all-stock deal to create a consolidation-focused oil and gas company with an enterprise value of about $5.7 billion.
Deal-making in the sector has been on the rise as a vaccination-led recovery in demand has boosted oil and gas prices after one of the worst energy downturns in history.
The companies see “large and attractive” opportunities among the large cap independent and small sub-scale public companies as well as private companies that are seeking liquidity, executives said in call with analysts on Tuesday.
Contango’s shares jumped 15% to $6.47, while KKR shares traded flat in early trading.
Both Independence, built and managed by private equity KKR’s Energy Real Assets team, and Contango have producing assets across Rockies in Colarado, Permian in Texas and Mid-Continent basins.
Independence shareholders will own about 76% and Contango investors will own the rest of the combined company after the deal, which is expected to close in the third quarter or early fourth quarter.
The new company is expected to produce 108,000 to 114,000 barrels of oil equivalent per day in 2022, with adjusted core earnings between $750 million and $800 million.
Based on Contango’s closing price on Monday, the combined company will have an initial equity market capitalization of about $4.8 billion.
The combined business will be managed by KKR’s Energy Real Assets team and David Rockecharlie, head of KKR Energy Real Assets, will serve as the chief executive.
Contango’s chairman and largest shareholder, John Goff, will be the chairman of the combined company, which will be headquartered in Houston.
It expects to operate under a new name and a new ticker symbol and plans to list on the New York Stock Exchange.
KKR will receive a special class of non-economic preferred stock that provides it with the authority to appoint all board members as well as some consent rights over actions such as debt incurrence, officer changes, mergers, acquisitions and divestitures.