Transaction Creates Largest Unconventional
Shale Producer in the Permian Basin
Concho Resources Inc. (NYSE: CXO) and RSP Permian,
Inc. (NYSE: RSPP) today announced they have entered into a
definitive agreement under which Concho will acquire RSP in an
all-stock transaction valued at approximately $9.5 billion,
inclusive of RSP’s net debt. The consideration will consist of
0.320 shares of Concho common stock for each share of RSP common
stock. The transaction was unanimously approved by the board of
directors of each company.
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Highlights
- Large, highly-complementary acreage
expands Concho’s strategic portfolio in the Permian Basin to
approximately 640,000 net acres
- Reinforces leadership position as the
premier Permian pure-play company and creates the largest crude oil
and natural gas producer from unconventional shale in the Permian
Basin
- Combined company to run the largest
drilling program in the Permian Basin with 27 rigs
- Meaningfully expands premium resource
base
- Drives significant operational
synergies through development optimization, shared infrastructure
and capital efficiencies, with a present value of more than $2
billion
- Expect to realize over $60 million in
annual corporate level savings
- Immediately accretive to key per-share
metrics, including net asset value, earnings, cash flow and
debt-adjusted growth
- Expect to maintain investment grade
credit ratings
- Enhances Concho’s three-year annualized
production growth outlook within cash flow from operations
Tim Leach, Chairman and Chief Executive Officer of Concho,
commented, “This transaction provides a compelling opportunity for
both Concho and RSP shareholders to benefit from the strength of
our combined company. The RSP team built an exceptional high-margin
asset portfolio consistent with our playbook – large, contiguous
positions in the core of the Permian Basin. And they did so with a
strategy of maximizing well performance and returns, which provides
substantial running room for continuous development with
large-scale projects. This combination allows us to consolidate
premier assets that seamlessly fold into our drilling program,
enhance our scale advantage and reinforce our leadership position
in the Permian Basin, all while strengthening our platform for
delivering predictable growth and returns. We look forward to
welcoming RSP’s employees as members of the Concho team.”
Steve Gray, Chief Executive Officer of RSP, commented, “I am
extremely proud of the RSP team and the high-quality position we
built in the Permian Basin. As RSP has grown and we have seen the
resource play develop in the Permian, we have come to recognize
that combining with a company with the scale, investment grade
balance sheet and operational excellence of Concho will unlock even
more value for shareholders. The combined company will have the
vision and necessary financial strength to efficiently develop the
tremendous resource potential of these assets with large-scale
projects.”
The acquisition will add approximately 92,000 net acres that
strongly complement Concho’s existing acreage position in the
Permian Basin. The combined position will cover more than 640,000
net acres. In fourth-quarter 2017, production on RSP’s assets
totaled approximately 55.5 thousand barrels of oil equivalent (Boe)
per day on a two-stream basis, of which approximately 80% was crude
oil and 20% was natural gas. The transaction adds 2.2 billion Boe
of resource potential, of which more than two-thirds is premium
resource.
The combined company will run the largest drilling and
completion program in the Permian Basin. With a focused portfolio
and substantial scale advantage, the benefits of this transaction
are expected to drive corporate level savings and operational
synergies by combining the complementary assets and the technical
skills of both company’s employees. Specific operational synergies
include: asset optimization, directing capital to high-return
manufacturing-style projects and utilizing shared infrastructure
systems. The present value of corporate and operational synergies
is expected to exceed $2 billion.
The acquisition is expected to be accretive in the first year to
Concho’s key per-share metrics, including net asset value,
earnings, cash flow and debt-adjusted growth. In addition, the
transaction is expected to enhance Concho’s three-year outlook for
annualized production growth on a capital program within cash flow
from operations.
Transaction Details
Under the terms of the definitive merger agreement, shareholders
of RSP will receive 0.320 shares of Concho common stock in exchange
for each share of RSP common stock, representing consideration to
each RSP shareholder of $50.24 per share based on the closing price
of Concho common stock on March 27, 2018. The consideration
represents an approximately 29% premium to RSP’s closing price of
$38.92 on March 27, 2018. Upon closing of the transaction, Concho
shareholders will own approximately 74.5% of the combined company,
and RSP shareholders will own approximately 25.5%. The resulting
capital structure is consistent with Concho’s long-term strategy of
maintaining a strong financial position.
The transaction, which is expected to be completed in the third
quarter of 2018, is subject to the approval of both Concho and RSP
shareholders, the satisfaction of certain regulatory approvals and
other customary closing conditions.
Upon closing, Concho’s board will be expanded to 11 directors,
to include one independent member of the RSP board. Concho will
continue to be headquartered in Midland, Texas.
Advisors
Morgan Stanley & Co. LLC is acting as exclusive financial
advisor to Concho, and Sullivan & Cromwell LLP and Gibson, Dunn
& Crutcher LLP are acting as legal advisors to Concho. Tudor,
Pickering, Holt & Co. is acting as exclusive financial advisor
to RSP, and Vinson & Elkins LLP is acting as legal advisor to
RSP.
Investor and Analyst Conference Call
Concho will host a conference call for investors and analysts at
7:30 AM CT (8:30 AM ET) today, March 28, 2018, to discuss this
transaction. The telephone number and passcode to access the
conference call are provided below:
Dial-in: (844) 263-8298Intl. dial-in: (478) 219-0007Participant
Passcode: 9329028
To access the live webcast and view the presentation for the
call, visit Concho’s website at www.concho.com. The replay
will also be available on Concho’s website under the “Investors”
section.
Concho Resources Inc.
Concho is an independent oil and natural gas company engaged in
the acquisition, development, exploration and production of oil and
natural gas properties. Concho’s operations are focused in the
Permian Basin of Southeast New Mexico and West Texas. For more
information, visit the Concho’s website at
www.concho.com.
RSP Permian, Inc.
RSP is an independent oil and natural gas company focused on the
acquisition, exploration, development and production of
unconventional oil and associated liquids-rich natural gas reserves
in the Permian Basin of West Texas. The vast majority of RSP’s
acreage is located on large, contiguous acreage blocks in the core
of the Midland and Delaware Basins, sub-basins of the Permian
Basin.
No Offer or Solicitation
This communication relates to a proposed business combination
transaction (the “Transaction”) between RSP Permian, Inc. (“RSP”)
and Concho Resources Inc. (“Concho”). This communication is for
informational purposes only and does not constitute an offer to
sell or the solicitation of an offer to buy any securities or a
solicitation of any vote or approval, in any jurisdiction, pursuant
to the Transaction or otherwise, nor shall there be any sale,
issuance, exchange or transfer of the securities referred to in
this document in any jurisdiction in contravention of applicable
law. No offer of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended.
Additional Information and Where to Find It
In connection with the Transaction, Concho will file with the
U.S. Securities and Exchange Commission (“SEC”) a registration
statement on Form S-4, that will include a joint proxy statement of
RSP and Concho that also constitutes a prospectus of Concho. RSP
and Concho may also file other documents with the SEC regarding the
Transaction. The definitive joint proxy statement/prospectus will
be sent to the stockholders of Concho and RSP. This document is not
a substitute for the registration statement and joint proxy
statement/prospectus that will be filed with the SEC or any other
documents that Concho or RSP may file with the SEC or send to
stockholders of Concho or RSP in connection with the Transaction.
INVESTORS AND SECURITY HOLDERS OF RSP AND CONCHO ARE URGED TO
READ THE REGISTRATION STATEMENT, THE JOINT PROXY
STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS THAT ARE
FILED OR WILL BE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR
SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY
BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT
THE TRANSACTION AND RELATED MATTERS.
Investors and security holders will be able to obtain free
copies of the registration statement and the joint proxy
statement/prospectus (when available) and all other documents filed
or that will be filed with the SEC by Concho or RSP through the
website maintained by the SEC at www.sec.gov. Copies of documents
filed with the SEC by RSP will be made available free of charge on
RSP’s website at http://www.rsppermian.com, under the heading “SEC
Filings,” or by contacting RSP’s Investor Relations Department by
phone at 214-252-2790. Copies of documents filed with the SEC by
Concho will be made available free of charge on Concho’s website at
http://www.concho.com/investors or by contacting Concho’s Investor
Relations Department by phone at 432-221-0477.
Participants in Solicitation
Concho, RSP and their respective directors and executive
officers may be deemed to be participants in the solicitation of
proxies from the holders of Concho’s common stock and RSP’s common
stock in respect to the Transaction.
Information regarding RSP’s directors and executive officers is
contained in the proxy statement for RSP’s 2017 Annual Meeting of
Stockholders filed with the SEC on April 28, 2017 and in the other
documents filed after the date thereof by RSP with the SEC. You can
obtain a free copy of this document at the SEC’s website at
www.sec.gov or by accessing RSP’s website at
http://www.rsppermian.com. Information regarding Concho’s executive
officers and directors is contained in the proxy statement for
Concho’s 2017 Annual Meeting of Stockholders filed with the SEC on
April 5, 2017 and in the other documents filed after the date
thereof by Concho with the SEC. You can obtain a free copy of this
document at the SEC’s website at www.sec.gov or by accessing
Concho’s website at http://www.concho.com/investors.
Investors may obtain additional information regarding the
interests of those persons and other persons who may be deemed
participants in the Transaction by reading the joint proxy
statement/prospectus regarding the Transaction when it becomes
available. You may obtain free copies of this document as described
above.
Forward-Looking Statements and Cautionary Statements
The foregoing contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. All statements, other
than statements of historical fact, included in this communication
that address activities, events or developments that Concho or RSP
expects, believes or anticipates will or may occur in the future
are forward-looking statements. Words such as “estimate,”
“project,” “predict,” “believe,” “expect,” “anticipate,”
“potential,” “create,” “intend,” “could,” “may,” “foresee,” “plan,”
“will,” “guidance,” “look,” “outlook,” “goal,” “future,” “assume,”
“forecast,” “build,” “focus,” “work,” “continue” or the negative of
such terms or other variations thereof and words and terms of
similar substance used in connection with any discussion of future
plans, actions, or events identify forward-looking statements.
However, the absence of these words does not mean that the
statements are not forward-looking. These forward-looking
statements include, but are not limited to, statements regarding
the Transaction, pro forma descriptions of the combined company and
its operations, integration and transition plans, synergies,
opportunities and anticipated future performance. There are a
number of risks and uncertainties that could cause actual results
to differ materially from the forward-looking statements included
in this communication. These include the expected timing and
likelihood of completion of the Transaction, including the timing,
receipt and terms and conditions of any required governmental and
regulatory approvals of the Transaction that could reduce
anticipated benefits or cause the parties to abandon the
Transaction, the ability to successfully integrate the businesses,
the occurrence of any event, change or other circumstances that
could give rise to the termination of the merger agreement, the
possibility that stockholders of Concho may not approve the
issuance of new shares of common stock in the Transaction or that
stockholders of RSP may not approve the merger agreement, the risk
that the parties may not be able to satisfy the conditions to the
Transaction in a timely manner or at all, risks related to
disruption of management time from ongoing business operations due
to the Transaction, the risk that any announcements relating to the
Transaction could have adverse effects on the market price of
Concho’s common stock or RSP’s common stock, the risk that the
Transaction and its announcement could have an adverse effect on
the ability of Concho and RSP to retain customers and retain and
hire key personnel and maintain relationships with their suppliers
and customers and on their operating results and businesses
generally, the risk the pending Transaction could distract
management of both entities and they will incur substantial costs,
the risk that problems may arise in successfully integrating the
businesses of the companies, which may result in the combined
company not operating as effectively and efficiently as expected,
the risk that the combined company may be unable to achieve
synergies or it may take longer than expected to achieve those
synergies and other important factors that could cause actual
results to differ materially from those projected. All such factors
are difficult to predict and are beyond Concho’s or RSP’s control,
including those detailed in Concho’s annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K that
are available on its website at http://www.concho.com and on the
SEC’s website at http://www.sec.gov, and those detailed in RSP’s
annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K that are available on RSP’s website at
http://www.rsppermian.com and on the SEC’s website at
http://www.sec.gov.
All forward-looking statements are based on assumptions that
Concho or RSP believe to be reasonable but that may not prove to be
accurate. Any forward-looking statement speaks only as of the date
on which such statement is made, and Concho and RSP undertake no
obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as required by applicable law. Readers are cautioned not to
place undue reliance on these forward-looking statements that speak
only as of the date hereof.
Cautionary Statements Regarding Resource
Concho may use the term “resource potential” and similar phrases
to describe estimates of potentially recoverable hydrocarbons that
SEC rules prohibit from being included in filings with the SEC.
These are based on analogy to Concho’s existing models applied to
additional acres, additional zones and tighter spacing and are
Concho’s internal estimates of hydrocarbon quantities that may be
potentially discovered through exploratory drilling or recovered
with additional drilling or recovery techniques. These quantities
may not constitute “reserves” within the meaning of the Society of
Petroleum Engineer’s Petroleum Resource Management System or SEC
rules. Such estimates and identified drilling locations have not
been fully risked by Concho management and are inherently more
speculative than proved reserves estimates. Actual locations
drilled and quantities that may be ultimately recovered from
Concho’s interests could differ substantially from these estimates.
There is no commitment by Concho to drill all of the drilling
locations that have been attributed to these quantities. Factors
affecting ultimate recovery include the scope of Concho’s ongoing
drilling program, which will be directly affected by the
availability of capital, drilling and production costs,
availability of drilling services and equipment, drilling results,
lease expirations, transportation constraints, regulatory
approvals, actual drilling results, including geological and
mechanical factors affecting recovery rates, and other factors.
Such estimates may change significantly as development of Concho’s
oil and natural gas assets provide additional data. Concho’s
production forecasts and expectations for future periods are
dependent upon many assumptions, including estimates of production
decline rates from existing wells and the undertaking and outcome
of future drilling activity, which may be affected by significant
commodity price declines or drilling cost increases or other
factors that are beyond Concho’s control. Concho’s use of the term
“premium resource” refers to assets with the capacity to produce at
an internal rate of return that is greater than thirty-five percent
based on fifty-five dollar oil and three dollar gas.
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Concho Resources Inc.Investor Relations:Megan
P. Hays, 432-685-2533Vice President of Investor Relations and
Public AffairsorMary T. Starnes, 432-221-0477Investor
Relations Manager
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