Concho Resources Inc. (NYSE: CXO) (“Concho” or the “Company”) today announced three separate transactions that enhance the Company’s position in the southern Delaware Basin, high grade the Company’s portfolio and reduce net debt.
- Concho agreed to acquire approximately 12,000 net acres complementary to the Company’s core North Harpoon prospect in Ward and Reeves Counties, Texas, from a private operator for total consideration of approximately $360 million, through a combination of common stock, cash and drilling carry.
- The Company completed an acreage exchange with Clayton Williams Energy, Inc. (NYSE: CWEI) (“Clayton Williams”), consolidating 21,000 net non-operated acres into a concentrated, operated position adjacent to the Company’s Big Chief prospect in Reeves County, Texas.
- Concho agreed to sell 14,000 net acres in Loving County, Texas, for cash proceeds of $290 million.
- The aggregate impact of these transactions is neutral to Concho’s 2016 capital and production outlook.
Property Acquisition and Asset Exchange
Concho has entered into a definitive agreement to acquire 12,000 net acres in Reeves and Ward Counties, Texas, adjacent to the Company’s North Harpoon prospect for total consideration of approximately $360 million, including 2.2 million shares of Concho common stock, $150 million of cash and $40 million to carry a portion of the seller’s future drilling costs. The acquisition increases the Company’s exposure to core acreage in the southern Delaware Basin and enables more efficient, long-lateral development of Concho’s existing North Harpoon acreage. The acquired properties have current net production of approximately 3.6 MBoepd and estimated proved reserves of 18.5 MMBoe as of December 31, 2015. As part of the transaction, the seller will retain a 20% non-operated working interest in the assets. This acquisition is expected to close during the first quarter of 2016.
The acreage exchange with Clayton Williams encompasses approximately 21,000 net acres in the Company’s Big Chief prospect in Reeves County, Texas. Consolidating operated positions benefits both parties and allows Concho to optimize drilling activity with more efficient long-lateral wells and provides for greater control of field development. The acreage exchange will have no impact on Concho’s daily production.
Concho was a first mover in the southern Delaware Basin, which is characterized by multi-zone potential and considerable oil in place. The Company continues to lead development in the region with a focus on drilling longer laterals and optimizing completion techniques. The property acquisition and acreage exchange add more than 350 horizontal locations to the Company’s inventory in the southern Delaware Basin, of which more than 200 are long-laterals.
Concho also entered into a definitive agreement to sell 14,000 net acres located in Loving County, Texas, for cash proceeds of $290 million to Silver Hill Energy Partners II, LLC. Production for the third quarter of 2015 attributable to the assets was 2.5 MBoepd. The assets also include 5 MMBoe of estimated proved reserves as of December 31, 2014. The asset sale eliminates approximately $100 million of lower rate-of-return obligation drilling in 2016. The sale is expected to close during the first quarter of 2016 and be structured as a like-kind exchange.
Vinson & Elkins LLP acted as legal advisor to Concho on the property acquisition and the acreage divestiture. Scotia Waterous acted as financial advisor to Concho on the acreage divestiture.