Concho To Sell Shelf Asset, Plans To Begin Buyback Program

Concho Resources Inc. (NYSE:CXO) has been executing its strategy to boost the value of its legacy assets and minimize its cost structure. To this end, it has announced that it will divest its New Mexico property for $925 million to a unit of Spur Energy Partners LLC.

In line with this, the company has plans to initiate a $1.5-billion stock repurchase program. This will be partly backed by the divestiture of the New Mexico asset wherein 40% of the proceeds will be used for the buyback program and the remaining will be utilized in repaying the debts.

Currently, the Continental Shelf asset produces 25,000 barrels of oil equivalent per day (bpd) at 100,000 gross acres adjoining Concho Resources’ operation in the Delaware Basin. Notwithstanding the New Mexico asset sell-off, this Midland-based E&P company intends to continue with its various development projects in southeastern New Mexico for helping its employees.

The oil-levered producer in the Permian Basin focuses on selling its non-core assets to enhance its portfolio value. Further, it aims to streamline its cost structure leading to cost-efficient growth. Additionally, Concho Resources concentrates on attaining its debt-reduction target and improve returns to its shareholders.

So selling this non-core Shelf asset will help Concho Resources save its cash operating costs and inch closer to its 2020 target expense of $9 per barrel of oil equivalent (bpd) compared with the current figure of $9.83 bpd. Moreover, the stock repurchase program shows Concho Resources’ strong belief in its strategy. Tim Leach, chairman and CEO, Concho Resources, feels that this venture is a vindication of the company’s scheme to generate solid cash flow along with sustainable oil production.

The transaction is contingent on pending approvals and is estimated to complete during November 2019.

Zacks Rank & Key Picks

Concho Resources carries a Zacks Rank #3 (Hold). Better-ranked players in the energy space include BP (LON:BP) Midstream Partners (NYSE:BPMP) , Dril-Quip, Inc. (NYSE:DRQ) and World Fuel Services Corporation (NYSE:INT) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BP Midstream’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters.

Dril-Quip earnings beat the Zacks Consensus Estimate in three of the previous four quarters.

World Fuel Services earnings beat the Zacks Consensus Estimate in all the last four quarters.

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