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Concho Resources Prices Share Issue - Analyst Blog

Posted: 5/14/2014 3:50:00 PM
Referenced Stocks: CPE;CXO;EPL;MTDR

Midland, TX-based Concho Resources Inc. ( CXO ) has priced an underwritten public offering of 6,500,000 common shares - upsized from the original offering size of 6,000,000 shares - at $129.00 a piece, with an over-allotment option for an additional 975,000 shares. The offering, which was announced on May 12, is likely to close on May 16.

The oil and natural gas explorer plans to use the net proceeds from this offering to repay the debts under the company's credit facility, as well as for corporate purposes that includes financing its three-year accelerated growth plan, capital expenditure tied to the recently announced midstream joint venture and potential future asset buys.

Concho Resources, which recently reported upbeat first quarter results on strong production, is an independent exploration and production company engaged in the acquisition, finding, and development of oil and gas properties. The company's operations are concentrated primarily in the Permian Basin of Southeast New Mexico and West Texas.

With holdings of around 605,000 net acres across the Permian Basin, 22,000 drilling locations and approximately 3 billion oil-equivalent barrels of resource potential, Concho Resources' asset portfolio is primed for high production growth and peer-leading returns.

However, as is the case with other independent exploration and production companies, Concho Resources' results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company's revenues, earnings and cash flow.

As a result, Concho Resources currently retains a Zacks Rank #3 (Hold), implying that it is expected perform in line with the broader U.S. equity market over the next one to three months.

However, some better-ranked domestic upstream energy stocks include Matador Resources Co. ( MTDR ), Callon Petroleum Co. ( CPE ) and EPL Oil & Gas Inc. ( EPL ). All the firms hold a Zacks Rank #1 (Strong Buy).

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