Concho Resources has more than a hunch that a lucrative resource lies under its feet in Southeastern New Mexico and West Texas. The company explores and develops properties (about 375,000 net acres), located primarily in the Permian Basin region, in which it produces oil and natural gas. It also owns properties in North Dakota and Arkansas. About two-thirds of the company's 323.4 million barrels of proved reserves is crude oil, while the rest is natural gas. Concho Resources gets the bulk of its sales from crude oil. Regional refiner Navajo Refining Company accounted for 32% of the company's total sales in 2010.
Mergers and Acquisitions
The company has been focused on expanding its holdings through medium- and large-sized acquisitions. To boost its Permian Basin holdings, in 2008 Concho Resources spent $585 million to buy Henry Petroleum and in late 2009 it acquired two plays in the Wolfberry play in the Permian Basin for $260 million. In a major move, in 2010 the company also acquired Marbob Energy (which had operations located in the Permian Basin) for about $1.2 billion. The purchase added 76 million barrels of oil equivalent and a net daily production of 14,000 barrels of oil equivalent.
To free up cash to help pay for its expansion, in 2010 the company sold non-core Permian Basin oil and natural gas properties to Legacy Reserves for $103 million. In 2011 it also sold Bakken assets to Linn Energy for $196 million.
The acquisitions, and a 46% increase in production, coupled with high oil prices, helped to lift Concho Resources' revenues and income dramatically in 2010.
In late 2011 the company agreed to acquire interests in the Wolfberry trend in the Permian Basin from Petroleum Development Corporation for $175 million. The acquisition would add about 10,200 net acres to the company's holdings in the region and has estimated proved reserves of about 13 million barrels of oil equivalent and net production of about 1,100 barrels of oil equivalent per day.
The company boosted its Permian holdings further in 2012 after buying all of the oil and gas assets of Three Rivers Operating Company for $1 billion. Three Rivers has estimated proved reserves of 58 million barrels of oil equivalent and 200,000 net acres in a handful of Permian plays.
To raise cash, in 2012 the company sold some Permian Basin oil and natural gas properties to Legacy Reserves for $520 million. – less