After leaking last Friday of a potential deal in the works, $COP and $CXO put ink to paper and make this acquisition official.

Deal Terms: 

  • 1.46 shares of $COP to each $CXO shareholder
    • 15% premium based upon Oct. 13 closing prices
  • Creates largest independent oil and gas company with over 1.5M boe/day
  • Expected cost savings of over $500 million by 2022
  • Q3 cash flow expected for Concho around $600 million
  • CEO of Concho Tim Leach becomes EVP and President of L48 and appointed to the Board of Directors

My biggest takeaway (albiet a win for $COP in the current price environment) is the fact that Concho had one of the few bright spots within the Permian and with manageable debt load, $CXO shareholders are left holding their lunch in their hands, so to speak. Had $CXO made this choice this time last year, imagine the deal terms (think Andarko/Oxy then add some) $CXO would have been offered?

The question is then why sell if your $CXO?  A few reasons why:

  1. US Shale Outlook
    • with prices expected to range between $35-$45 for the next 18-24 months, Leach and his advisors see this as a chance to realize (with a very nice change of control package I covered on Friday) that shale is not what it once was for the independent, regional player.  Midland Based, Midland Proud only gets you so far…
  2. M&A market for small capitalized companies isn’t as hot as we thought
    • $CXO was seen by many (including me) as a potential “buyer-at-the-deadline” (for all my baseball friends out their), expected to snatch up smaller, Permian focused shale players.  Selling this late in the down cycle tells me that the value they say in buying was worse than the value they say in “selling-out”, tanking for a top draft pick.
    • This does not boat well for smaller, regional based players who were expecting to be fielding offers from these larger capitalized companies.  With one less player off the board, it is hard to see who these smaller cap view as targets, and some might move to merge within themselves, as mentioned by President of EnerCom Aaron Vandeford on the monthly Energy Tracker called hosted by Haynes and Boone.
  3. Wildcard
    • ???? reason we call it a wild card.

OAG360 will be covering this story in more detail on our Daily Energy Market Summary, at 2 PM MST.

By Michael Tanner – Correspondent and Host of Daily Energy Market Summary – SUBSCRIBE  


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