Concho Resources (CXO) Update - Sept 4

[dan_s]

Concho Resources (CXO) announced Tuesday that it would sell assets in the Permian Basin and launch a buyback program.

Concho, the largest producer in the Permian, will sell its New Mexico Shelf assets to Spur Energy Partners for $925 million. The sale includes approximately 100,000 gross acres with current production of 25,000 barrels of oil equivalent per day. < This compares to Concho's capex budget of $2.8 to $3.0 Billion, which is now being funding entirely by cash flow from operations.

"Divesting our New Mexico Shelf position enables us to accelerate the value of these legacy assets, while focusing our portfolio on opportunities with the highest potential for strong returns," CEO Tim Leach said in a statement.

Concho said it would use the proceeds from the deal to pay down borrowings on its credit and initiate its $1.5 billion share repurchase program. The deal is expected to close in November.
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The Wall Street Gang should love this since it gives Concho's balance sheet a big boost. They already had a strong balance sheet. Plus, it is very good news to see that there are some buyers out there for producing assets.

[dan_s]

Gabriele Sorbara, senior equity analyst at Williams Capital valued the acreage at $725 million to $875 million.

The New Mexico Shelf sale only accounts for a small percentage of Concho's assets in the Permian Basin. They are largely mature older vertical wells that have "not been a real needle mover to operations," Sorbara said.

He expects shares to outperform on the announced asset sale and buyback program and reaffirmed his BUY rating and $114 price target on Concho's stock.

In Stifel's E&P stock valuation update dated 9-3-2019 they rate CXO a BUY with a $172 price target and a "4P Net Asset Valuation" of $214.52.