Energy Prospectus

On September 30, after the markets closed, CXO announced a public offering of 7.7mn shares (8.9mn including underwriter option). Proceeds are expected to repay all outstanding borrowings under the company's credit facility ($206mn at 6/30/15) and for general corporate purposes.

This does not have much impact on my valuation of $141/share. First Call's target price is $132.45.

Concho Resources Inc. (CXO) (the “Company”) today announced that it has priced an upsized public offering of 7,700,000 shares of its common stock for total gross proceeds (before underwriters’ fees and estimated expenses) of approximately $712 million. The underwriters have an option for 30 days to purchase up to an additional 1,155,000 shares of common stock from the Company. Proceeds from the offering are expected to be used to repay all outstanding borrowings under the Company’s credit facility, which were used in part to finance recent acquisitions, and for general corporate purposes, including funding potential future acquisitions.

J.P. Morgan and Credit Suisse are acting as joint book-running managers for the offering. The offering is expected to close on October 6, 2015, subject to customary closing conditions.

Here is what Stifel had to say this morning:

Reloading the War Chest
The transaction improves one of the stronger balance sheets in the E&P industry
for a company that is expecting to generate strong growth and spend within cash
flow in 2H15 and 2016. We project debt/EBITDA to decline to 1.7x at YE15 from
1.9x at 6/30/15, compared to our previous estimate of 2.2x. Consequently, we
believe CXO is well positioned to bulk up its Permian Basin asset base via
acquisitions.
By our projections, YE15 liquidity should approximate $3.0B, comprised of $500mn
in cash and a credit facility with a $2.5B commitment. The latter could be expanded
to the $3.25B borrowing base limit at CXO's discretion and will not face a
re-determination this fall.
Three Areas Ripe for Consolidation
CXO's history suggests the company will direct acquisition efforts toward the
myriad of private companies with significant leasehold in the Permian Basin, which
has played host to at least one new entrant each of the past 11 consecutive
quarters. We suspect management would like to accelerate the process of blocking
up core holdings in the Northern Delaware Basin where the company has been
steadily increasing lateral lengths. CXO has yet to find the economic
benefit limits to lateral length despite drilling laterals as long as 10k feet.
Significant improvement in its recent Southern Delaware Basin and Midland Basin
wells has management contemplating a transition to full-phase development of
both areas next year. Accordingly, we would not be surprised to see the company
expand its footprint in either area.
CXO is valued at 9.6x EV/2016 EBITDA compared to 10.8x and 12.5x for
large-cap Permian peers PXD and XEC. We believe CXO's Bone Spring assets
are generating returns that rank among the best in the basin and our NAV estimate
of $121/share is based on conservative type curve and spacing assumptions.