Contango looks to grow again after near demise, turnaround
Contango Oil & Gas founder Kenneth Peak died in 2013, then the company struggled through the most recent oil bust, with bankruptcy looming.
At the beginning of September, the Houston company’s stock was trading for less than $1 per share with ominous debt payments due at the end of the month. But with Contango under new ownership and management, the company negotiated a new deal with its lenders, got an influx of capital from the banks and its largest shareholder, and went on a sudden buying spree, suddenly trans
forming into a growing company looking to buy distressed oil and gas assets around the country.
The turnaround is largely the result of Fort Worth real estate billionaire John Goff buying a big stake in Contango last year as an investment opportunity, installing new leadership and continuing to pump his own money into the company to help right the ship and put it on a growth trajectory.
“Under Ken Peak, Contango was a phenomenal success,” Goff said. “But then it fell into disarray. The company kind of lost its way. We felt that it needed a catalyst and real change.”
The big turning point under Goff came when it worked out new lending deals for more capital and extended repayment timelines with JPMorgan Chase, the Royal Bank of Canada and Cadence Bank. The banks agreed to supply more money and Goff invested $25 million more.
Contango started buying up the distressed assets in Oklahoma, the Texas Panhandle and northern Louisiana from Will Energy of Dallas and White Star Petroleum of Oklahoma City. At the same time, Contango is drilling in Pecos County in West Texas’ booming Permian Basin.
“It was like a light switch,” Goff said. “We went from playing defense to playing offense.”
Contango’s stock value has quickly more than doubled from less than $1 a share to about $2.75, bringing the company’s market value up to about $240 million. That’s still less than when Goff made his initial investment, but the company has pulled back from the brink and is now on the upswing.
Cheap purchases
Contango is pursuing a strategy of growing by buying cheap, mature oil and gas assets from struggling or bankrupt companies. Contango paid just $23 million for Will Energy’s 160,000 net acres that had been seized by banks and then $132.5 million in a bankruptcy auction for White Star’s 315,000 net acres in the Cherokee, STACK and Anadarko basins in Oklahoma. Although Contango historically has been focused on natural gas— its “MCF” stock ticker stands for thousand cubic feet of gas — the company will focus more on producing higher-price crude oil moving forward.
“These are just the first acquisitions of, hopefully, many more acquisitions to come,” Goff said. “These were just incredibly attractive prices.”
Natural gas prices are low and crude prices modest, so it’s a good time to buy, Goff said. That’s why Contango is focused on growing through mergers and acquisitions.
“We have too many small companies that can’t really afford to exist on their own, so there will be a lot of consolidation,” Goff said.
Before Goff, Contango was nearly one of those companies. Goff is a major real estate player with his firm Crescent Real Estate. He became a borderline billionaire when he sold his firm to Morgan Stanley in 2007 and then, after the Great Recession, bought it back for much less.
During the most recent oil bust, he decided it was a good time to start investing more in the energy sector. He first bought a 10 percent stake in Denver-based Resolute Energy near the bottom of the bust in 2016. The deal brought Goff a big return when Resolute was sold for about $1 billion in March.
‘Smart, strategic buys’
Last year, Goff bought a nearly 20 percent stake in Contango when the Chicago financial services firm Ariel Investments decided to sell its shares. Since then, Goff has increased his ownership to more than 35 percent. He’s taken a seat on the board and installed Goff Capital executive Wilkie Colyer Jr. as the Contango CEO. Joseph Romano, who has worked with Contango since its founding 20 years ago, remains the chairman.
Goff said he’s realistic about Contango’s future. “We can’t compete with the big boys,” he said. But, he added, Contango can keep making smart, strategic buys in proven basins to bring in a steady flow of cash, which in turn could fuel new growth.