Concho picks up more Delaware basin acreage

Concho Resources Inc., Midland, Tex., has agreed to acquire 24,000 gross (16,400 net) acres in the northern Delaware basin from an undisclosed buyer for $430 million.

The acquired acreage is complementary to the firm’s leasehold in the northern Delaware, with 12,000 gross (10,000 net) acres in the Red Hills area in Lea County, NM, expanding the firm’s Red Hills position to 47,000 net acres. The acquired acreage includes current production of 2,500 boe/d, of which 69% is oil.

“This transaction is an opportunistic bolt-on in the Red Hills area where we are consistently delivering strong well performance,” said Tim Leach, Concho chairman, chief executive officer, and president. “Our evaluation provides for multiple opportunities to enhance value through increased density development on multiwell pads as well as additional zones beyond the Avalon shale, Wolfcamp shale, and the emerging Wolfcamp sands.”

Concho describes the Red Hills area as “an oil-prone fairway generating exceptional returns at current commodity prices.” It says the area is highly prospective for multizone development, with more than 5,000 ft of resource-rich hydrocarbon column.

The deal more than doubles the firm’s long-lateral drilling inventory in Red Hills and enhances its ability to drill long laterals on existing leasehold, Concho says.

The firm now plans to increase its operated rig count to an average of 8 in the northern Delaware basin during 2017. The firm expects to increase its oil-production volumes by more than 20% year-over-year in 2017 and total production by 18-21%, up from the previously disclosed guidance range of 17-20%.

Consideration in the deal includes $150 million of cash and 2.18 million shares of Concho’s common stock. The firm expects to fund the cash portion of the deal with cash on hand, borrowings under its credit facility, and potential noncore asset sales. The deal is expected to close in January 2017.

Concho last January made three deals in an effort to improve its position in the southern Delaware basin, adding acreage in the North Harpoon and Big Chief prospects (OGJ Online, Jan. 19, 2016). The firm in October completed its acquisition of 40,000 net acres in the Midland basin from Reliance Energy Inc. for $1.625 billion (OGJ Online, Aug. 15, 2016).

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