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Concho to Acquire Northern Delaware Basin Assets for $430M

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Concho Resources Inc. announced that it has inked a definitive agreement to purchase about 24,000 gross (16,400 net) acres in the northern Delaware Basin for about $430 million.

The acquired acreage complements the company’s leasehold position in the northern Delaware Basin, with about 12,000 gross (10,000 net) acres located in the Red Hills area in Lea County, NM. The asset has about 2.5 thousand barrels of oil equivalent per day of current production, of which oil is 69%.

The Red Hills area, an oil-prone fairway producing excellent returns at the current commodity prices, has bright prospects for multi-zone development. It offers over 5,000 feet of resource-rich hydrocarbon column which will more than double the company’s long-lateral drilling inventory in the region. The purchase expands Concho’s position in the area by over 25% to about 47,000 net acres. It also boosts Concho’s ability to drill long laterals on the existing leasehold.

Concho is expected to make a payment of about $150 million in cash and 2.18 million in shares of its common stock. Subject to customary closing conditions, the deal is expected to close in Jan 2017. The transaction will be accretive to cash flow and leverage neutral.

As a result of the acquisition, Concho intends to increase its operated rig count to an average of eight rigs in the northern Delaware Basin during 2017. On a year-over-year basis, Concho expects to boost oil production volumes by over 20% in 2017 and total production by 18–21%, up from its previous guidance of 17% to 20%. The company has maintained its capital expenditure guidance in the range of $1.4 billion to $1.6 billion for 2017.

Concho’s continued focus on boosting capital efficiency and aggressively managing its portfolio further strengthens its position in the Permian basin and reinforces its ability to deliver differentiated long-term growth.

Concho currently has a Zacks Rank #2 (Buy). A few other favorably placed players in the same sector include SunCoke Energy Inc. (SXC - Free Report) , Suncor Energy, Inc. (SU - Free Report) and TransCanada Corporation (TRP - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SunCoke Energy posted a positive earnings surprise of 177.78% in the last reported quarter. It reported a positive earnings surprise in three of the four preceding quarters.

Suncor Energy posted a positive earnings surprise of 300.00% in the preceding quarter. It reported an average earnings surprise of 40.55% for the four preceding quarters.

TransCanada posted a positive earnings surprise of 22.92% in the last reported quarter.

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