Current CXO Stock Info

Concho Resources doubles long-lateral inventory with Red Hills bolt-on
Concho Resources Inc. (ticker: CXO) announced Monday that the company has added approximately 24,000 gross (16,400 net) acres to its norther Delaware Basin assets through a $430 million deal with an undisclosed seller. The acquired acreage is producing approximately 2.5 MMBOEPD (69% oil) and doubles the company’s long-lateral drilling inventory in the Red Hills area of the Northern Delaware Basin from which the company has posted strong drilling results in the past.


Analyst Commentary

Tudor Pickering Holt
CXO bolt-on acquisition of 16.4k net acres in N. Delaware Basin ($130.05 – B) – We estimate CXO is paying ~$21k/acre for 24k gross (16.4k net acres) in the N. Delaware Basin (~10k net in the Red Hills area in Lea County, NM) for $430mm, net of 2.5mboepd (69% oil) of PDP production from an undisclosed seller. Deal is expected to increase efficiencies by expanding long lateral inventory and taking advantage of the multi-stack pay (TPHe multiple Avalon, Bone Spring, Wolfcamp formations) in the area. Financing for the transaction with $150mm cash and 2.18mm shares of CXO common stock and is expected to close in January 2017. Planned rig count for 2017 in the N. Delaware increases by +1 to 8 rigs in 2017, with overall production guidance increased to 18-21% y/y overall (+17-20% previously) for the same $1.4-1.6B capex program within cash flow at strip.

Capital One
• Concho, an advocate of long-term consolidation in the Permian, is acquiring ~16.4K net acres in the northern Delaware Basin for $430MM (($150MM cash + 2.18MM CXO common shares representing ~1.5% of current share count) with the transaction expected to close in January 2017. The acreage being acquired is located in Lea & Eddy Counties (~10K in the Red Hills area in southern Lea) and includes ~2.5 Mboe/d (69% oil) of current production.
• Deal metrics work out to ~$19K/acre after assigning $122MM of production value based on $60K per flowing bbl/d. Although not a large deal on a relative basis (equates to ~2% of CXO's current EV), the transaction boosts our NAV by $3 to $153 while increasing our 2017 production estimate to 184.3 Mboe/d (+22% y/y) from 181.3 Mboe/d. The new acreage should allow for CXO to drill substantially more long laterals in Red Hills (an area where the company recently drilled 2 Upper Wolfcamp wells with avg peak 30-day rate of 2,385 boe/d on 6,826 avg laterals).

CXO announced it is adding to its northern Delaware position with the acquisition of ~16.4K net acres for $430 million, which will be funded by $150 million in cash and 2.18 million shares to the sellers (1.5% dilution). The acquisition doubles CXO's long-lateral drilling inventory in Red Hills, and assuming $40K per flowing Boe on 2.5 Mboepd (69% oil) in current production, the Company paid ~$20K per acre, which we believe is a fair price. CXO also increased FY17 production guidance from 17%-20% to 18%-21% while leaving FY17 Capex guidance at a range of $1.4 billion-1.6 billion and reiterating plans to fund that capital program within cash flow. We remain OW.

Wells Fargo
CXO announced an acquisition of 16,400 net acres in the Northern Delaware for $430MM or about $20,000 per net acre (undeveloped). Transaction includes 10,000 net acres in the Red Hills development area in Lea County, NM where the company released strong well performance during 3Q earnings, successfully testing the Wolfcamp Sands and confirmed multibench potential within the Avalon Shale. Acquisition increases Red Hills footprint by 25% to 47,000 net acres and effectively doubles long lateral drilling locations in the area. Remaining 6,400 net acres consists of blocks spanning into Eddy County adjacent to CXO’s existing position. Importantly, CXO plans to leverage existing Northern Delaware infrastructure given the acquired acreage is nearby its Alpha Crude Connector gathering system.

SunTrust Robinson Humphrey
Concho announced a $430 million acquisition of 16,400 Lea/Eddy Counties
NM acres (~$20k/acre backing out production) that not only expands the
company’s footprint in the highly attractive Red Hills area, but doubles longlateral
drilling opportunities in the area. As a result of the announced deal and
plans to add an 8th rig in the Northern Delaware, Concho increased its 2017
total production guidance to 18%-21% up from previously guidance range of
17%-20%. Stock should outperform today on the positive news including the
higher guidance.

CXO continues to aggressively expand one of the largest acreage positions in the
Permian Basin. The company has now spent $2.1B to acquire 54M net acres in the
basin this year via several large transactions. While roughly neutral to
our NAV estimate, the new assets should add value over time with improved
completions, tighter spacing, and emerging zones.  

Legal Notice