Whenever these blockbuster mergers are announced, the stock of the Buyer always seems to take an initial hit and then bounce back. It is like the Wall Street Gang always thinks the Buying Company did no due diligence and overpaid for the assets. Sometimes they do, but Concho has a world class technical team and in this case 1 + 1 = 2.5. In my opinion, Concho made a very good deal.
RSPP's leasehold fits well into Concho's existing leasehold. Concho knows the rocks very well, so they did not overpay.
My valuation before the deal was $52/share for RSPP, based on $60/bbl WTI for all future periods.
Concho has a lower cost of capital and they will eliminate a high percentage of the G&A.
Large contiguous leasehold blocks are worth more than chopped up leasehold, especially in a horizontal play.
Take my forecast models for each company and add them together for 2019, then reduce G&A by 50% of what I show for RSPP. That will give you an idea of what Concho will look like in 2019. Take oil price up $10/bbl just for fun.
Concho is bouncing back because the Wall Street Gang has done some homework and is figuring this out.
Concho Resources (CXO)
Concho Resources (CXO)
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group