Midland-based Concho Resources will pay $8 billion to buy West Texas rival RSP Permian in a merger that creates the largest shale driller in the booming Permian.
While not a household name, the big sale makes Concho an even larger power player in the Permian Basin, which now accounts for more than half of all the oil drilling rigs in the entire country. RSP Permian is based out of Dallas, but it’s also focused just on West Texas and the parts of the Permian extending into New Mexico.
Perfectly positioned to capitalize off the Permian shale boom from its Midland home, Concho has grown rapidly as one of the leaders in domestic oil production. Concho was valued on Wall Street at more than $23 billion before the deal was announced Wednesday.
RSP, which was formed in 2010, was valued at about $6.2 billion before the sale.
Concho Chairman and CEO Tim Leach said RSP Permian operates similarly to his company, so they should mesh well to form one super Permian Basin player.
“The RSP team built an exceptional high-margin asset portfolio consistent with our playbook – large, contiguous positions in the core of the Permian Basin,” Leach said. “And they did so with a strategy of maximizing well performance and returns, which provides substantial running room for continuous development with large-scale projects.
“This combination allows us to consolidate premier assets that seamlessly fold into our drilling program, enhance our scale advantage and reinforce our leadership position in the Permian Basin, all while strengthening our platform for delivering predictable growth and returns.”
After independent producers in West Texas like Concho and RSP helped lead the initial Permian shale boom, the focus switched last year to Big Oil players like Exxon Mobil and Chevron beefing up their Permian positions. Now, Concho is taking action to stake its claim as the leader in Permian shale, especially in the unconventional production that combines horizontal drilling techniques with hydraulic fracturing, called fracking, to produce oil and gas from the hard-to-crack shale rock.
Energy analyst David Kistler, of Piper Jaffrey & Co., said Concho is successfully increasing the scale and scope of its already enviable Permian position. At the same time, RSP Permian shareholders should benefit from great value generated by the sale, he added.
However, the sale is happening at a time when investors are asking for discipline and shying away from forking over a lot of extra dollars. As such, the initial Wall Street reaction was down on Concho’s big move. Concho’s stock dipped about 8 percent in early Wednesday morning trading. Likewise, RSP Permian stock jumped more than 15 percent.
RSP Permian will give Concho nearly 100,000 more net acres in the Permian, increasing its overall position to about 640,000 net acres. The combined company would have 27 active drilling rigs operating in the Permian.
Apart from the $8 billion sale, Concho also will assume about $1.5 billion in RSP Permian debt.
