Concho's Acquisition of RSP Creates New Opportunities for Greater Efficiency

Map of Concho Resources and RSP Permian's Currently Producing Wells
Sources: Kayrros Analysis, Texas RRC, New Mexico OCD
New synergies arise through combining the two companies' acreage and technology
Concho Resources announced its acquisition of RSP Permian on March 28, forming the largest unconventional producer in the Permian.
    • The deal strengthens Concho's position in the Permian by adding to the company's existing assets in the Northern Delaware Basin and Midland Basin.
  • RSP's higher well performance and premium acreage, complemented with Concho's use of longer laterals, has the potential to further boost the combined company's operational efficiency.
Distribution of 24-hour Initial Production in the Wolfcamp Formations since 2016
Sources: Kayrros Analysis, Texas RRC, New Mexico OCD
RSP's producing assets in the Delaware Basin primarily target the Wolfcamp formations. On average, its wells achieved lower initial production rates compared to Concho's.
    • Most of RSP's wells in the Wolfcamp formations, prior to 2017, were from its Silver Hill acquisition. After that acquisition, RSP maintained a similar initial production on average for new wells drilled, although the performance of individual wells varied to a greater extent in both directions.
  • Concho has an even larger variation on its initial production in Wolfcamp,but achieved a higher median rate at just above 1,000 b/d.
Evolution of Average Lateral Length Completed in the Wolfcamp 
NB: Data for RSP prior to November 2016 include wells from Silver Hill
Sources: Kayrros Analysis, Texas RRC, New Mexico OCD
A significant factor in Concho wells achieving higher initial production is due to its longer laterals.
    • Concho has largely drilled longer laterals in Wolfcamp compared to RSP since 2015, contributing to its higher initial production rates.
  •  Concho has significantly increased its lateral lengths since the start of 2017, which by the end of the year reached an average of 8,800 ft in Wolfcamp, compared to 5,300 ft for RSP.
Distribution of Initial Production Normalized by Lateral Length in the Wolfcamp Formations since 2016
Sources: Kayrros Analysis, Texas RRC, New Mexico OCD
After normalizing by the lateral length, it can be seen that RSP manages to produce more oil per lateral foot in Wolfcamp than Concho.
    • Most of RSP's high performing wells in Wolfcamp came from its Silver Hill acquisition. But even after that acquisition, RSP's lateral length normalized initial production continued to average better than Concho's.
  • One additional factor which plays into RSP's higher normalized IPs is its acreage location, towards the East of the Delaware Basin, where gas-oil ratios are lower.
Distribution of Initial Production Normalized by Lateral Length in the Spraberry Trend Area since 2016
Sources: Kayrros Analysis, Texas RRC
Concho also adds high-performing Midland acreage from the RSP deal.
  • In the Spraberry Trend Area, RSP wells significantly outperform Concho wells, as the median normalized initial production is double that of Concho.

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