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Permian drillers Concho Resources, RSP Permian to merge in $9.5B all-stock deal

Concho Resources Inc. agreed to acquire its fellow Permian Basin producer RSP Permian Inc. in an all-stock merger deal worth about $9.5 billion, creating a combined company that will run the largest drilling program in the shale play.

Under the deal, RSP shareholders stand to get 0.320 share of Concho common stock for each RSP share they own, according to a March 28 news release. The consideration represents $50.24 per share based on the closing price of Concho's common stock as of March 27, and a 29% premium to RSP's closing price of $38.92 on the same day. The total deal value includes RSP Permian's net debt.

The merger would boost Concho's Permian Basin position to about 640,000 net acres with 27 rigs, making it the largest crude oil and natural gas producer from unconventional shale in the Permian. The additional 92,000 net acres from the combination are complementary to Concho's current acreage position, the company said. Production on RSP's assets was about 55,500 barrels of oil equivalent per day, composed of 80% crude and 20% natural gas, in the fourth quarter of 2017.

Concho also expects to realize more than $60 million in annual corporate level savings and over $2 billion in corporate and operational synergies as a result of the deal.

"The RSP team built an exceptional high-margin asset portfolio consistent with our playbook — large, contiguous positions in the core of the Permian Basin," said Tim Leach, chairman and CEO of Concho. "This combination allows us to consolidate premier assets that seamlessly fold into our drilling program, enhance our scale advantage and reinforce our leadership position in the Permian Basin, all while strengthening our platform for delivering predictable growth and returns."

Upon deal closing, the combined company would be owned 74.5% by Concho shareholders and 25.5% by RSP shareholders. Concho's board would be expanded to 11 directors to include one independent member of RSP's board.

The merger transaction is scheduled to close in the third quarter of 2018. Morgan Stanley & Co. LLC is acting as exclusive financial adviser and Sullivan & Cromwell LLP and Gibson Dunn & Crutcher LLP are acting as legal advisers to Concho. Tudor Pickering Holt & Co. is serving as RSP's exclusive financial adviser, while Vinson & Elkins LLP is acting as its legal adviser.