Corporate and operational synergies
The transaction would add 2.2 billion Boe (barrels of oil equivalent) of resource potential (almost two-thirds of that is Permian resource) to CXO’s existing resource base of 10 billion Boe.
Longer laterals: CXO’s key focus
The transaction is also expected to drive down costs through efficient drilling and completion techniques. CXO noted that the combination would complement its focus on the development of longer laterals. According to CXO’s 4Q17 earnings release, it sold non-core leaseholds in Ward and Reeves Counties in the Permian Basin for approximately $280 million since those assets were “non-operated with low working interest and not conducive to long-lateral development.”
According to its 4Q17 earnings release, in the Northern Delaware Basin, Concho achieved an average lateral length of 6,685 feet in 4Q17, while in the Southern Delaware Basin, it achieved an average lateral length of 10,354 feet. In the Midland Basin, it achieved an average lateral length of 11,656 feet in 4Q17.
Since RSP’s assets lie adjacent to Concho’s (see image in Part 2), that would create significant operational synergies “(FINAL)-Concho-Acquires-RSP-Permian-Release.pdf">through development optimization, shared infrastructure and(FINAL)-Concho-Acquires-RSP-Permian-Release.pdf"> capital efficiencies, with a present value of more than $2 billion.” Additionally, the company expects to realize more than $60 million in annual corporate level savings.
In the next part, we’ll see how the deal could enhance Concho’s position.