Texas oil company, Concho Resources, Inc. has agreed to purchase its rival RSP Permian, Inc. The deal was agreed upon on Wednesday, and is valued at approximately $9.5 billion. The buyout could increase momentum for production of more oil as prices continue to increase.
The move by Concho Resources comes at a time when the Permian basin is increasing rapidly, and will make it the largest producer of shale oil and natural gas in the oil-rich area. The deal will be the largest acquisition in the oil industry since 2012. Concho will now have 27 oilrigs spread across 640,000 acres in the region.
There have been few corporate acquisitions in the Southwestern oil patch since the collapse of oil prices four years ago. However, larger companies such as Chevron and Exxon Mobil have increased their investments in the region. Oil production in the Permian basin has also increased and currently runs approximately 3 million barrels daily. Analysts predict that the oil production will grow to 5 million barrels per day by 2025.
Last year Exxon Mobil purchased 275,000 acres of land in the Permian basin worth $6.6 billion. The company also recently made an announcement saying that it would be spending $50 billion on its operations in the Permian basin, a move that is likely to triple its oil and gas production over the next five years.
The recent move by Exxon and Concho is part of a wide trend in the sector, which is focusing on investments in New Mexico and Texas, and shifting from natural gas to oil. Another good example is QEP Resources – a key producer of national gas based in Denver – which has recently sold its holdings in Louisiana and North Dakota in an effort to concentrate on the Persian basin.
Following news of the deal, RSP shares soared 15% to close at $45, while Concho shares dropped 8.8% or $13.75 to end trading at $143.25. Concho Resources said shareholders will immediately benefit from the deal because it would increase its earnings per share, as well as net asset value and cash flow.
On the other hand, shareholders of RSP will get 0.32 of Concho shares, according to the terms of the deal. RSP’s shares have lost 4.2 percent while Concho’s stocks have gained 3.8 percent over the last three months. The deal is slated to be completed during the third quarter of 2018.