Concho, RSPP agree to form largest shale producer in Permian

By Luke Geiver | April 02, 2018

With the Permian Basin moving into a more intense development phase, Tim Leach, CEO of Concho Resources Inc., believes now is the time to pursue massive operating scale. In a deal valued at $9.5 billion, Leach’s team has agreed to acquire RSP Permian Inc. in a deal that could create the largest unconventional shale producer in the Permian Basin. “We will be an even stronger company and better positioned for more growth,” Leach said.

The increase in development throughout the Permian has placed a premium on operational scale and infrastructure access for E&P’s looking to maintain or increase efficiency as well-pads grow in wellhead count per pad.

If completed in Q3 2018, Concho would hold 640,000 net acres in the Permian and push the company to the top of the drilling rig count for the play. At 267 mboepd, Concho will also become the Permian’s largest-by-volume oil producer. And, through the combined company, Concho would move from the fifth ranked company in the play by enterprise value to the third following only EOG Resources and Apache.

The combined entities will initially benefit in four areas: development efficiencies, share infrastructure, asset optimization and corporate level savings.

The Permian’s largest producer will generate cost savings from batch drilling and completions and will have fewer parent-child infill wells. Across the acreage of Concho, RSPP’s assets will help better utilize the infrastructure created and used by Concho. Pad sites, production facilities, water disposal wells and roads will also be better utilized by each entity operating under one name.

Leach said Concho is already looking to trade other acreage in an effort to block-up the new acreage position of the company. At the corporate level, Concho will instantly save $60 million.

Of the $9.5 billion paid to acquire RSPP, $8 billion will be put towards a stock swap with existing RSPP holders. The remaining $1.5 billion will be used to take care of existing debt. Currently, RSPP’s stock is trading at roughly $43/share, while Concho’s stock is trading on the NYSE at just over $143/share.

For the near-term future, the drilling schedule and location of rigs should remain as is, according to Leach. Concho believes it will continue to grow production within cashflow.

Concho will continue to be headquartered in Midland, Texas.