Concho Resources (CXO) Update - Aug 29
Posted: Wed Aug 29, 2018 11:24 am
I just finished my review of the updated profile for Concho and we will be sending it out late today. Our MBA that worked it up did a great job.
CXO is trading for approximately $137/share today.
I have lowered my valuation $11 to $184/share, just because I have decided to use a lower multiple of CFPS to value it since it is in the "transition period" following their merger with RSPP. The merger closed on July 19th. Deals of this size do take time to "absorb" (people, records, systems, field operations, etc.). My teams at Hess did a lot of the grunt work "post-mergers", so I have a fairly good idea of how hard the people at Concho and RSP Permian are working these days.
Since Concho announced Q2 results and pro forma guidance, five Wall Street analysts have submitted updated forecasts/valuations to Reuters / First Call.
Their valuations range from $155 (Morgan Stanley) to $240 (Raymond James).
I also lowered my estimated realized oil price for 2H2018 and for 2019 a few dollars per barrel because of the Permian Basin takeaway capacity issues. None of their oil will be "stranded", but netback prices will be impacted for awhile.
Concho's stand alone Q2 production was 228,958 Boepd (above my forecast) with a mix of 62.5% crude oil and 37.5% natural gas & NGLs. Concho reports gas & NGLs on a combined basis. Natural gas prices in the Permian Basin have been hammered because of pipeline capacity issues, but NGL prices came in higher than expected.
Today, Concho is producing ~300,000 Boepd (~65% crude oil). My forecast for 2019 assumes that their production will be 330,000 Boepd (64.2% crude oil). The company has not yet provided production guidance for 2019, but they do expect an exit rate this year of ~310,000 Boepd.
Concho is now running 32 operated rigs and 10 completion crews. That is a massive operation with a lot of logistics to work out.
CXO is trading for approximately $137/share today.
I have lowered my valuation $11 to $184/share, just because I have decided to use a lower multiple of CFPS to value it since it is in the "transition period" following their merger with RSPP. The merger closed on July 19th. Deals of this size do take time to "absorb" (people, records, systems, field operations, etc.). My teams at Hess did a lot of the grunt work "post-mergers", so I have a fairly good idea of how hard the people at Concho and RSP Permian are working these days.
Since Concho announced Q2 results and pro forma guidance, five Wall Street analysts have submitted updated forecasts/valuations to Reuters / First Call.
Their valuations range from $155 (Morgan Stanley) to $240 (Raymond James).
I also lowered my estimated realized oil price for 2H2018 and for 2019 a few dollars per barrel because of the Permian Basin takeaway capacity issues. None of their oil will be "stranded", but netback prices will be impacted for awhile.
Concho's stand alone Q2 production was 228,958 Boepd (above my forecast) with a mix of 62.5% crude oil and 37.5% natural gas & NGLs. Concho reports gas & NGLs on a combined basis. Natural gas prices in the Permian Basin have been hammered because of pipeline capacity issues, but NGL prices came in higher than expected.
Today, Concho is producing ~300,000 Boepd (~65% crude oil). My forecast for 2019 assumes that their production will be 330,000 Boepd (64.2% crude oil). The company has not yet provided production guidance for 2019, but they do expect an exit rate this year of ~310,000 Boepd.
Concho is now running 32 operated rigs and 10 completion crews. That is a massive operation with a lot of logistics to work out.