Concho Resources Extends Permian Reach with $1.62B Acquisition

Concho Resources Extends Permian Reach with $1.62B Acquisition

Concho Resources (NYSE: CXO) is an independent pure play operator focusing in on the Permian Basin. More specifically they operate in the Delaware Basin and Midland Basins, recently acquiring more acreage in the Midland area. CXO is expecting to spend $1.2 billion during the 2016 having already depleted $572 million or 52% during the first two quarters. The company has focused in on reducing operating cost looking to reduce the transportation costs associated with water disposal volumes by using pipelines rather then trucks.

enter image description hereSource: CXO Investor Relations

Midland Basin Acreage Grows by 35% With Acquisition

Concho recently announce the acquisition of 40,000 net acres across Andrews, Martin and Ector Counties in Texas for $1.62 billion from Reliance Energy. The transaction brings their Midland Basin assets to over 150,000 net acres adding 530 locations to their drilling inventory which could target the Middle and Lower Spraberry as well as Wolfcamp B. Of the added inventory two-thirds of drilling locations are 2 mile laterals and the remaining are 1.5 mile. The company has increased its full year production guidance in 2016 expecting to grow by 1% to 3% while maintaining capital levels.

The map below is showing Concho Resources activity in the Permian Basin in 2016 with permits in blue and completion activity in green. The red box marks the are where Concho acquired acreage from Reliance Energy.

enter image description hereSource:Energent Group

Current activity in the Midland Basin includes Concho running six rigs as of the end of the second quarter. Concho continues the shift toward pad drilling as they have completed wells on three different pads during 2016 ranging from two to four wells per pad.

Testing in The Delaware Basin and New Mexico Shelf

Since the start of 2016 Concho has focused completion activity in the Northern Delaware Basin completing 24 wells in the second quarter with average lateral lengths of 4,978 for wells on production longer then 30 days. During the second quarter average drilling days dropped to 19 and the second half of the year will bring longer laterals drilled in the Avalon Shale.

enter image description hereSource: CXO Investor Relations

In the Southern Delaware Basin Concho brought four horizontal wells online during the second quarter with average lateral lengths of 5,660 feet. The company will continue to focus on the Wolfcamp during 2016 and continue to explore the third Bone Spring for future opportunities.

Concho is currently running 2 rigs in the New Mexico Shelf area and has completed 4 horizontal wells in the second quarter. The company plans to spend ~$120 million during the year where they have 100,000 net acres.

Where Does Concho Stand Amongst Peers?

Concho compared to some peers like Pioneer Natural Resources, QEP Resources and SM Energy who have also acquired core acreage in the Permian during 2016 looks to be taking a risk. This transaction is possible because of the company’s financial position having their stock price rise in 2016, currently trading around $132 per share.

enter image description hereSource: Energent Group

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