Concho Resources (NYSE:CXO) has made another acquisition in the Permian Basin, increasing the company's exposure and singular focus on this booming oil and gas region in the United States.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Concho Resources announced the purchase of the oil and gas assets of Three Rivers Operating Company, a private company with both developed and undeveloped acreage in various parts of the Permian Basin.

Concho Resources agreed to pay cash consideration of $1 billion in exchange for 200,000 net acres containing 58 million barrels of oil equivalent (BOE) of proved reserves. Fifty percent of the reserves are oil and 59% are developed. The properties have current production of 7,000 BOE per day.

Three Rock Operating Company has approximately 1,560 locations in the Permian Basin, prospective for various high growth emerging plays including the Bone Springs, Wolfcamp, Avalon Shale and Wolfberry formations.

Concho Resources has increased the company's capital budget to $1.4 billion in 2012 due to the additional development on the new acreage. The company expects to drill approximately 950 wells during the year.

SEE: Oil And Gas Industry Primer

Existing Position
Concho Resources focuses exclusively on the Permian Basin and had leasehold of 980,000 gross acres and 76,000 BOE per day of production prior to the acquisition. The company is active in three core areas in the basin and is operating 37 rigs here in both Texas and New Mexico.

Concho Resources will fund the acquisition through the company's $1.8 billion credit facility. The company is also planning to divest conventional oil and gas assets held by Three Rock Operating Company. These sales are expected to yield between $200 million and $400 million and reduce production by 1,500 BOE per day.

SEE: What Determines Oil Prices?

Concho Resources believes that the acquisition is consistent with the company's strategy of looking to consolidate and expand its position in the Delaware and Midland Basin areas, while targeting additional crude oil and liquids development.

Other Permian Operators
Many operators have recently purchased oil and gas properties in the Permian Basin. BreitBurn Energy Partners L.P. (Nasdaq:BBEP) made two separate acquisitions for $220 million and added net production of 2,100 BOE per day. LRR Energy, L.P. (NYSE:LRE) also acquired Permian Basin properties, and will pay $67 million for acreage here and in the Gulf Coast region.

Chesapeake Energy (NYSE:CHK) is looking to sell its Permian Basin acreage as the company seeks to raise cash to help fund its capital program for 2012. Anadarko Petroleum (NYSE:APC) and Occidental Petroleum (NYSE:OXY) are reportedly evaluating the assets, according to Bloomberg Businessweek magazine.

SEE: A Guide To Investing In Oil Markets

The Bottom Line
Concho Resources has tied the future of the company to the Permian Basin, and like many of its peers, it is relying on this rejuvenated oil and gas basin to generate growth for the company.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  2. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  3. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  4. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  5. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  6. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  7. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  8. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  9. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  10. Stock Analysis

    Are the Brands Millennials Love a Good Buy?

    Millennials make up a very big — and thus important —c onsumer generation. So if they love a brand, its stock is likely to outperform, right?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center