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Concho agrees to sell off New Mexico shelf assets

Spur Energy in $925 million deal to buy US independent's position in northwest of Permian basin

US independent Concho Resources has agreed to sell off assets in the north-west shelf of the prolific Permian basin as part of a $925 million deal with Houston-based Spur Energy Partners.

Concho said it intends to use the proceeds to pay down debt on its revolving credit facility.

The company has also initiated a share repurchase programme of up to $1.5 billion, which directors have already authorised.

The sale comes as the company intends to focus on wider well spacing in the coming year.

Concho in the second quarter reported that well spacing was too tight at the 23-well Dominator project in the Delaware sub-basin of the Permian. The wells were drilled 50% tighter than the company’s traditional spacing.

The sale includes an estimated 100,000 gross acres on New Mexico’s north-west shelf, which borders the Delaware sub-basin, with current production of around 25,000 barrels of oil equivalent per day.

Concho in March 2018 scooped up rival RSP Permian in a $9.5 billion deal, adding about 92,000 net acres in the Texas portion of the Permian.

“Divesting our New Mexico shelf position enables us to accelerate the value of these legacy assets, while focusing our portfolio on opportunities with the highest potential for strong returns,” Concho chief executive Tim Leach said.

The company posted a second quarter loss of $97 million, compared to net income of $137 million in the same period last year.

The agreement was viewed positively by analysts at Cowen Research, which said that based on state data, about 78% of the 2500 wells sold were vertical wells.

The wider spacing in 2020, Cowen said, will “drive substantial capital efficiency improvement in 2020 through reduced well costs, cycle times and better well productivity".

That spacing calls for about six to eight wells per section. In the company’s Lea County assets in New Mexico, wider spacing tests outperformed tighter tests by 33% after six months, Cowen said.

Concho anticipates output of between 316,000 and 322,000 boepd for the third quarter.

The deal with Spur Energy, which is subject to closing conditions, is expected to be completed in November.

Spur Energy was created in 2019 by Jay Graham, former chief executive of WildHorse Resource Development which was sold to Chesapeake Energy in November for $3.98 billion.

The start-up in May partnered with investment firm KKR and acquired about 22,000 net acres in the north-west shelf from Percussion Petroleum.

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