Concho Resources Gets More Permian Basin Exposure

By Eric Fox | May 28, 2012 AAA

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.

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Acquisition
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.

Financing
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?


Rationale
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.

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

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