Concho Resources Said to Pursue Rival Clayton Williams

  • Clayton retained Goldman Sachs in October to review options
  • Concho and Clayton explore for oil and gas in Permian Basin

Concho Resources Inc., one of the top energy explorers in the oil-soaked Permian Basin beneath Texas and New Mexico, is seeking to buy Clayton Williams Energy Inc., people with knowledge of the matter said.

Concho is bidding for Clayton Williams, said the people, who declined to be identified because the matter is not public. Clayton Williams has drawn interest from other suitors and may yet decide to remain independent, raise capital or sell assets, the people said. Clayton said in October it retained Goldman Sachs Group Inc. to help it explore options including a sale.

A spokeswoman for Clayton Williams declined to comment, as did a spokeswoman for Goldman Sachs. A representative of Concho didn’t immediately respond to requests for comment.

Small oil and gas explorers are increasingly putting themselves up for sale as low oil prices pressure profits and lenders tighten credit lines, sapping cash for drilling.

Clayton Williams’ shares rose more than 5 percent in after hours trading. The stock closed at $57.83 Thursday in New York, giving the Midland, Texas-based company a market value of about $703 million. Clayton Williams also has about $750 million in debt. Concho is down 9.3 percent in the past year, compared with a 53 percent drop for the Bloomberg Intelligence North American Independent E&P Index.

Relative Strength

Concho, eager to expand through acquisitions, is viewed as a leading candidate to win the sale process for Clayton Williams, given its relatively strong share price, which means it can outbid other suitors using its stock as currency, one of the people said. It could also save money by combining overlapping operations it has with Clayton Williams in a western slice of the Permian called the Delaware Basin, this person said.

Clayton Williams, whose namesake founder started the company in 1991 after an infamous campaign for Texas governor, controls about 340,000 acres in the Permian and Eagle Ford Basins, two of the largest and most productive oil and gas fields in the U.S.

Like other explorers, Clayton Williams has been sidelining rigs to preserve cash since oil prices crashed last year. It lost more than $9 million in the third quarter, after earning more than $27 million in year-earlier period, according to its earnings report.

Shares of Concho, also based in Midland, fell 2.2 percent Thursday to $104.81, giving it a market value of $13.5 billion. Concho has 700,000 net acres in the Permian, according to its third-quarter report. Buying Clayton Williams would extend its reach into the Eagle Ford Basin, a large, half-moon-shaped swathe of oil-and-gas-soaked rock deep beneath much of southeastern Texas.

Clayton Williams’ 66,000 acres in the Delaware portion of the Permian Basin “would likely be the prize asset,” said Gurpal Dosanjh, an analyst that covers explorers and refiners for Bloomberg Intelligence. Its other assets in the Eagle Ford and elsewhere “would likely be of far lower interest.”

Before it's here, it's on the Bloomberg Terminal.