Get the Latest Investment Ideas Delivered Straight to Your Inbox. Subscribe

TICKERS: CXO

Oil/Gas E&P to Buy Permian Acreage in 'Immediately Accretive' Deal
Research Report

Share on Stocktwits

Source:

John Freeman, an analyst with Raymond James, discussed the proposed transaction.

Oil pump

John Freeman, an analyst with Raymond James, discussed the proposed transaction.

A March 28 Raymond James research report noted that Texas-based Concho Resources Inc. (CXO:NYSE) agreed to acquire RSP Permian Inc. (RSPP:NYSE) for $50.24 per share in an all-stock, "immediately accretive deal," indicated analyst John Freeman.

In doing so, Concho would add about 92,000 (92K) complementary net acres to its existing roughly 640K net acre land package. "Note that Concho is already the largest pure play in the Permian sandbox, and this deal bolsters its position by ~45K/~47K net acres in the Delaware and Midland, respectively," Freeman wrote.

"At a $9.5 billion acquisition price," Freeman explained, Concho would pay an estimated 75K per undeveloped acre, which compares to the $35–40K per acre rate that other companies paid in recent transactions. "This deal yields the highest acreage valuation we have seen in the space," he relayed.

"The rich acreage value" reflected in this acquisition could benefit the stock of other Permian-focused companies, Freeman added. "Today’s deal highlights the recent disconnect between public energy equities and asset valuations, likely boding well for the entire group."

In combining with RSP Permian, Concho would save $60 million in 2018 alone and about $2 billion (present value) overall, it estimated. The analyst added, "The headline acreage price that Concho paid does not take into account the massive synergies it anticipates from the transaction — scale matters!"

Some of those synergies would be the ability to go after even larger projects; cost savings from completion of bigger pads, potentially eight well versus two to three; enhanced scale with respect to infrastructure capabilities, including water and sand delivery systems; and lower present and future corporate overhead costs, noted Freeman. "Operator ability to leverage bigger acreage and infrastructure footprints will be a key differentiator in the sector going forward."

Freeman opined that Concho's proposed transaction likely will stand. "The Concho-RSP Permian deal price appears strong enough to flush out potential competitive bidders in our view, given the healthy valuation on RSP Permian's undeveloped acreage."

Raymond James has a Strong Buy rating on Concho Resources.

Want to read more Energy Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from Raymond James, Concho Resources Inc., Mar. 28, 2018

ANALYST INFORMATION

Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst's efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.

The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

RAYMOND JAMES RELATIONSHIP DISCLOSURES
Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all companies under research coverage within the next three months.





Want to read more about Oil & Gas - Equipment, Oil & Gas - Services and Oil & Gas - Exploration & Production investment ideas?
Get Our Streetwise Reports Newsletter Free and be the first to know!

A valid email address is required to subscribe