Permian pure-player Concho Resources Inc., Midland, Texas, (NYSE: CXO) has bolstered its base with a $1-billion cash acquisition of Mike Wichterich’s Austin, Texas-based privately held Three Rivers Operating Co., its largest purchase since acquiring Marbob Acquisition in 2010.
Three Rivers assets include 310,000 gross (200,000 net) acres in the Permian Basin in Texas and New Mexico, including large positions in the Delaware Basin, Midland Basin Wolfberry play, and the southern Midland Basin horizontal Wolfcamp and Cline shale plays. Approximately 65% of the acreage is held by production. The deal represents a 42% increase to Concho’s net acreage in the Midland Basin and a 23% increase to net acreage in the northern Delaware Basin.
Estimated proved reserves are 58 million barrels of oil equivalent (50% oil, 55% proved developed) as of April 1. Estimated current net production is 7,000 BOE per day.
Upside includes approximately 380 identified horizontal drilling locations in the Delaware Basin, almost all of which are unproved, and more than 1,100 vertical drilling locations in the Midland Basin, of which over 740 are unproved.
Tim Leach, Concho chairman, chief executive and president, says, "Three Rivers represents a material consolidation opportunity within the proven core of the Delaware Basin, a continued expansion into the horizontal Wolfcamp and Cline shale plays in the southern Midland Basin, and a complementary addition to our core Yeso play. Combined with our existing portfolio, these assets give the company nearly 750,000 net acres across the Permian Basin, with exposure to some of the most exciting oil plays in the U.S.”
Concho intends to finance the acquisition with borrowings under its $2-billion credit facility, which had approximately $1.8 billion available at March 31. The company says it also plans to divest $200 million to $400 million of non-core assets from the acquisition and its existing assets over the next nine months.
Related to the acquisition, Concho subsequently has entered into crude oil swaps on 2.4 million barrels of oil at a weighted average price of $92.90 per barrel for the remainder of 2012 through 2017.
J.P. Morgan is lead financial advisor to Concho. BMO Capital Markets is also a financial advisor. Vinson & Elkins LLP is legal advisor. The deal is expected to close in July.
Three Rivers, a Riverstone/Carlyle-backed private-equity company, was formed in 2009. The company filed an S-1 to IPO in January.
Tudor, Pickering, Holt & Co. analyst Brian Lively says the deal “looks pretty good any way you slice it.” He places straight metrics at $143,000 per flowing BOE and $17 per proved BOE. “Assuming Concho paid $100,000 per BOE per day for production and two-thirds of the 200,000 net acres acquired are undeveloped, the purchase price implies Concho paid $2,250 per acre for undeveloped acreage.”
Wells Fargo analyst David Tameron says, “Given the dispersed nature of Three River’s assets, it is hard to pinpoint exactly what Concho was targeting, but this looks to us like an opportunistic ‘stock the cupboard’ transaction. The assets seem to be a good fit with the portfolio across all operating areas.”
KeyBanc Capital Markets David Deckelbaum adds, “We estimate Concho paid miminally above PV10 for the assets and is effectively getting unbooked resource potential at very attractive economics…Concho has positioned itself very economically for further advances into newly discussed pay zones such as the Cline, Wolfcamp and horizontal Yeso that (it) was already looking at on its own inventory.”
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