Concho Resources (CXO) Acquires Midland Assets for $1.63B
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Concho Resources Inc. (NYSE: CXO) today announced it has reached a definitive agreement to acquire approximately 40,000 net acres in the core of the Midland Basin from Reliance Energy, a privately held, Midland-based energy company, for $1.625 billion. The privately negotiated acquisition is consistent with Concho’s opportunistic and disciplined portfolio management strategy as it expands its core Midland Basin position to more than 150,000 net acres and production of 30 thousand barrels of oil equivalent per day (MBoepd).
- Adds approximately 40,000 net acres with an average 99% working interest to Concho’s core Midland Basin position
- Includes approximately 10 MBoepd (67% oil) of current production
- Enhances the Company’s drilling inventory with more than 530 long-lateral drilling locations targeting the Middle Spraberry, Lower Spraberry and Wolfcamp B
- Provides expansive development upside across multiple zones
Tim Leach, Chairman, Chief Executive Officer and President, commented, “This transaction demonstrates Concho’s commitment to the Midland Basin as a core operating area and highlights our continued efforts to consolidate complementary leasehold. In line with the objectives of our southern Delaware Basin acquisition in the first quarter of 2016, these assets not only build scale, but more importantly high-grade our inventory with additional long-lateral locations that compete with the best projects in the Permian Basin. As we continue to enhance our ability to efficiently allocate capital across our four key assets in the Permian Basin, we are uniquely positioned to deliver attractive returns today and build shareholder value over the long term.”
The acquisition includes 10 MBoepd from 326 vertical wells and 44 horizontal wells, only one of which was completed in 2016. The present value of this stable production base at current NYMEX strip pricing is approximately $0.5 billion, with the remaining $1.1 billion of the purchase price attributable to 40,000 undeveloped acres.
Estimated proved reserves attributable to the acquisition total approximately 43 million Boe. Proved developed reserves represent approximately 69% of the total proved reserves. The estimate of proved reserves is based on the Company’s internal estimates as of June 30, 2016, and utilizes the Securities and Exchange Commission’s reserve recognition standards and pricing assumptions based on the trailing 12-month average first-day-of-the-month prices of $39.63 per Bbl of oil and $2.24 per MMBtu of natural gas.
The acquired acreage is located in Andrews, Martin and Ector counties in Texas with minimal leasehold obligations. The acquisition adds more than 530 long-lateral drilling locations to the Company’s inventory. Due to the contiguous nature of the acquired assets, two-thirds of these locations are two-mile laterals, and the remaining locations are 1.5-mile laterals. The engineered locations are based on eight locations per zone in the Middle Spraberry, Lower Spraberry or Wolfcamp B, with two to three of these zones targeted per drilling spacing unit. The Company believes there is substantial development upside from applying optimal drilling and completion methods, testing closer well spacing and delineating other zones.
Consideration in the transaction includes approximately $1.1 billion of cash and 3.96 million shares of Concho’s common stock valued at approximately $0.5 billion and issuable pursuant to a stock payment option that the Company intends to exercise. The Company intends to fund the cash portion of the acquisition through proceeds from a potential equity market transaction, subject to market conditions and other factors. The acquisition is expected to close in October 2016, and is subject to customary closing conditions.
Vinson & Elkins LLP acted as legal advisor and Evercore acted as financial advisor to Concho on the acquisition. Sidley Austin LLP acted as legal advisor to Reliance Energy.
For a map related to this acquisition, visit “Investor News” on the “Investors” page on the Company’s website at www.concho.com.
Full Year 2016
Concho updated its full-year 2016 production outlook to a range of 1% to 3% annual growth to reflect production from the acquired assets in the fourth quarter of 2016. The Company maintained its capital expenditure guidance of $1.1 billion to $1.3 billion, excluding acquisitions.
Full Year 2017
Based on the current commodity price outlook, Concho expects to execute a capital program within cash flow and deliver approximately 20% annual production growth, with oil volume growth exceeding 20%. Concho’s 2017 capital program excludes acquisitions and is subject to change depending upon a number of factors, including commodity prices and industry conditions.
Redemption of Senior Notes
In addition to the announced transaction, the Company intends to issue a notice to redeem the entire outstanding principal amount of $600 million of its 7.0% Senior Notes due January 2021 (the “Notes”) pursuant to the special mandatory redemption procedures set forth in the indenture governing the terms of the Notes. The Company plans to fund the redemption primarily through cash on hand. This press release is not intended as a notice of any such redemption.
Brenda R. Schroer, who currently serves as the Company’s Vice President and Chief Accounting Officer, has assumed the additional role of Treasurer. Ms. Schroer joined Concho in 2013 as Vice President and Chief Accounting Officer and was previously with Ernst & Young LLP since 1999. She received a Bachelor of Business Administration in Accounting from West Texas A&M University, and a Master of Science in Accounting from Texas A&M University and is a certified public accountant.
Participation in Upcoming Conferences
The Company announced it will participate in the following conferences:
|August 24, 2016||Heikkinen Energy Conference|
|September 6, 2016||Barclays CEO Energy-Power Conference|
|September 13, 2016||Raymond James North American Equities Conference|
The Company will present at the Barclays CEO Energy-Power Conference on Tuesday, September 6 at 3:05 PM ET. The presentation will be available on the Company’s website on or prior to the day of the first conference.
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