Concho Resources Inc. on Tuesday expanded its natural gas and oil holdings in the Permian Basin of New Mexico after agreeing to buy privately held Marbob Energy Corp. for $1.65 billion.
The acquisition would give the Midland, TX-based producer about 100,000 acres in the emerging Bone Spring tight limestone and sandstone play, and it is the largest purchase in the company's history. The cash-and-stock purchase would add proved reserves estimated at 76 million boe, 42% weighted to natural gas and 63% proved developed. Marbob produced 14,000 boe/d in the first three months of this year.
Concho, which plans to retain Marbob's technical and operational staff, would gain around 166 million boe of estimated unproved reserves and close to 2,300 identified drilling locations.
"This acquisition has been one of our highest priorities for the last three years," said CEO Timothy A. Leach. "These assets are a perfect complement to our New Mexico Shelf position, and they double our Yeso drilling inventory. In addition, Marbob's Bone Spring acreage, when coupled with our existing acreage, gives the company over 100,000 net acres in one of the most exciting emerging plays in the industry today and adds a significant new area of growth to the company's portfolio.
"After closing, we plan to increase the activity level and rig count on these acquired properties, which should result in significant production growth over the next several years. Going forward Concho will be a bigger version of today's company, with a large, high rate of return, high margin drilling inventory that will be complemented by the Bone Spring play."
About 1,300 of the drilling locations are in the Yeso play, with 1,000 in the Bone Spring play, which is in Lea County, NM. Marbob currently is running five rigs, including one rig drilling Yeso wells and four rigs drilling in the Bone Spring play. The reserve-to-production ratio is estimated at 15 years.
The Marbob acquisition comes less than a year after Concho agreed to spend $225 million to buy wells and acreage in the same area of the Permian Basin. At the end of 2009 nearly all of Concho's total estimated net proved reserves were in the Permian Basin, weighted 67% to crude oil and 33% to natural gas.
Concho intends to finance the transaction with a combination of equity and debt. Marbob at closing would receive $1.45 billion in cash, 1.1 million shares of Concho common stock valued at $50 million in the aggregate and a $150 million 8% senior unsecured note due in 2018. The transaction is set to close by the end of November.
The Permian Basin's Bone Spring contains tight limestones and sandstones that overly the Avalon Shale in Lea and Eddy counties in New Mexico. Operators have begun to take leases in the region in their shift from gas-heavy portfolios to higher liquids plays.
During conference calls to discuss 1Q2010 earnings, several independents alluded to their plans to drill wells in the region, including Chesapeake Energy Corp., which had drilled eight Avalon Shale wells and 11 Bone Spring wells on 120,000 net acres.
Devon Energy Corp. also is said to be one of the biggest leaseholders in the play. Anadarko Petroleum Corp., which controlled close to 170,000 net acres earlier this year, was running four rigs in the Bone Spring play. One completion well flowed at a maximum rate close to 1,200 boe/d, Anadarko said.
Last month Cimarex Energy Co., which is based in Denver, signed an operating agreement with FieldPoint to drill two wells targeting the Bone Spring formation. FieldPoint would own a 43.75% working interest (WI) in the wells; Cimarex is to own a 37.5% WI while partners would own the remaining stakes.
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