Deals by Concho Resources target Delaware basin

Concho Resources Inc., Midland, Tex., has separately made three deals—an agreed upon acquisition, a completed acreage exchange, and an agreed upon sale—in an effort to improve its position in the southern Delaware basin.

In the acquisition, Concho agreed to take 12,000 net acres complementary to the company’s core North Harpoon prospect in Ward and Reeves Counties, Tex., from an undisclosed private operator for total consideration of $360 million, through a combination of common stock, cash, and drilling carry.

Concho says the deal, expected to close in the first quarter, increases its exposure to core acreage in the southern Delaware basin and enables more efficient, long-lateral development of the company’s existing North Harpoon acreage.

The acquired properties have current net production of 3,600 boe/d and estimated proved reserves of 18.5 million boe as of Dec. 31, 2015. As part of the deal, the seller will retain 20% nonoperated working interest in the assets.

The completed acreage exchange with Clayton Williams Energy Inc., Midland, consolidates Concho’s 21,000 net nonoperated acres into a concentrated, operated position adjacent to the company’s Big Chief prospect in Reeves County, Tex.

Concho took Clayton Williams Energy’s 75% working interest in certain leases and Clayton Williams Energy took Concho's 25% working interest in certain leases. The deal covers Clayton Williams Energy’s entire Reeves County position.

Substantially all of the acreage subject to the swap was associated with a 2011 farmout agreement between the Clayton Williams Energy and Chesapeake Energy Corp. through which Clayton Williams Energy earned its 75% interest in certain leases (OGJ Online, Mar. 24, 2011).

All lease rights transferred under the swap were limited to undrilled acreage and excluded reserves and production attributable to existing wells. The interest in the existing producing wells will remain the same.

The deal allows Concho to optimize drilling activity with more efficient long-lateral wells and provides for greater control of field development, the company says, adding that it continues to focus on drilling longer laterals and optimizing completion techniques in the southern Delaware, which is characterized by multi-zone potential and considerable oil in place.

The acquisition and acreage add more than 350 horizontal locations, of which more than 200 are long-laterals, to the company’s inventory in the basin.

In the third transaction, Concho agreed to sell 14,000 net acres in Loving County, Tex., to Silver Hill Energy Partners II LLC, Dallas, for cash proceeds of $290 million. The deal, expected to close in the first quarter, eliminates $100 million of lower rate-of-return obligation drilling for Concho in 2016.

Production from the assets during third-quarter 2015 totaled 2,500 boe/d. The assets also include 5 million boe of estimated proved reserves as of Dec.31, 2014.

Concho says aggregate impact of the deals is neutral to its 2016 capital and production outlook.

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