Adding to its already significant holdings in the Permian Basin of West Texas and southern New Mexico, Concho Resources Inc. on Monday agreed to acquire all the oil and natural gas assets of Three Rivers Operating Co. and affiliated entities for $1 billion in cash.
As Concho's largest acquisition since it added privately held Marbob Energy Corp. for $1.65 billion in 2010, the addition of privately held Three Rivers brings approximately 310,000 gross (200,000 net) acres in the Permian Basin, including large positions in Concho's core northern Delaware Basin play, the Midland Basin Wolfberry play, and the emerging southern Midland Basin horizontal Wolfcamp and Cline shale plays.
The Three Rivers assets include estimated proved reserves of approximately 58 million boe (50% oil and 55% proved developed) as of April 1, with an estimated current net production of 7,000 boe/d.
"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," said Concho CEO Timothy A. Leach. "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."
Leach said the deal adds 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 more than 740 are unproved. The acquisition also 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.
The company plans to finance the acquisition with debt under its $2 billion credit facility, which had approximately $1.8 billion available at the end of March. However, Concho also plans to sell $200-400 million of "certain noncore assets" from the acquisition and its existing assets over the next nine months.
In connection with the acquisition Concho entered into crude oil swaps on 2.4 million bbl of oil at a weighted average price of $92.90/bbl for the remainder of 2012 through 2017. Assuming regulatory approvals run smoothly, the acquisition is expected to close in July.
"This acquisition is expected to be immediately accretive to earnings, discretionary cash flow, production and reserves on a per share basis and provides an additional platform to significantly grow our production in the Permian Basin," said Leach. "We look forward to accelerating development on these assets and executing the same strategy of delivering return-driven, high-margin growth to our shareholders over the next several years."
The Marbob Energy acquisition in 2010 was Concho's largest deal in the company's history, adding significantly to its gas and oil holdings in the Permian Basin (see Daily GPI, July 21, 2010). The deal brought proved reserves estimated at 76 million boe, that at the time were 42% weighted to gas and 63% proved developed.