CXO Focus on Avalon Shale Assets

Zacks

Concho Resources Inc. (CXO) recently entered into an agreement with Mexco Energy Corporation (MXC) to focus on the development of the Bone Spring formation in southwestern Lea County, New Mexico.

Per the agreement, the duo will develop the acreage using horizontal drilling and multi-stage fracture stimulation. The first two horizontal wells of the prospective twelve will target the Avalon shale portion of the Bone Spring zone. Concho will pay 62.5% of the cost to drill and will have a 50% working interest (37.5% net revenue interest).

Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development, exploitation and exploration of oil and natural gas properties. The company's conventional operations are primarily focused on the Permian Basin of Southeast New Mexico and West Texas. In addition, the company is involved in a number of unconventional emerging resource plays.

As of Dec 31, 2012, the company owned interests in approximately 1.3 million gross (745,000 net) acres in New Mexico and Texas Permian, alongside proved reserves of 458 million barrels of oil equivalent.

In August, the company reported stable second quarter numbers. The bottom line rose 25.6% year over year owing to higher prices boosting revenues. Higher production at the same time also helped the improvement.

During the second quarter, production from the horizontal Delaware Basin grew 37% over the previous quarter driven by both the northern and southern Delaware Basin. The company is also steadily expanding its presence in Wolfberry in the Midland Basin.

The company currently holds a Zacks Rank #3, which is equivalent to a short-term Hold rating. However, there are other stocks in the oil and gas sector such as China Petroleum & Chemical Corp. (SNP) and SM Energy Company (SM), which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.

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