Stock Quote Header

Current Presentation

October 29, 2019MMMM d, yyy Q3 2019 Earnings Presentation
View this Presentation (PDF 2.33 MB)

Press Release Details

Concho Resources Inc. Reports Third-Quarter 2019 Results

10/29/2019

MIDLAND, Texas--(BUSINESS WIRE)-- Concho Resources Inc. (NYSE: CXO) (the “Company” or “Concho”) today reported financial and operating results for third-quarter 2019.

Third-Quarter 2019 Highlights

  • Delivered total production of 330 MBoepd, exceeding the high end of the Company's guidance range.
  • Achieved oil production volumes of 206 MBopd.
  • Reduced controllable cash costs per unit 3% year over year.
  • Surpassed year-end 2019 well cost reduction target with 20% lower well costs versus first-half 2019, led by a significant reduction in Delaware Basin well costs.
  • Announced strategic New Mexico Shelf divestiture for total cash consideration of $925 million, subject to customary closing and post-closing adjustments.
  • Authorized initiation of a $1.5 billion share repurchase program.
  • Generated cash flow from operating activities of $665 million; operating cash flow before working capital changes (non-GAAP) was $706 million, exceeding exploration and development costs incurred of $670 million.
  • Reported net income of $558 million, or $2.78 per share. Adjusted net income (non-GAAP) totaled $122 million, or $0.61 per share.
  • Generated $757 million of adjusted EBITDAX (non-GAAP).

See “Supplemental Non-GAAP Financial Measures” below for descriptions of the above non-GAAP measures as well as a reconciliation of these measures to the associated GAAP (as defined herein) measures.

Tim Leach, Chairman and Chief Executive Officer, commented, “The fundamentals of our business are solid, as demonstrated by our strong operational and financial performance in the third quarter. We achieved our production targets and materially reduced well costs, enabling us to surpass our well cost targets for the year and generate operating cash flow that exceeded capital spending. We also made significant progress on other important initiatives, including the sale of our New Mexico Shelf assets. The transaction was an important step in high-grading our portfolio, and we will use the proceeds to achieve our debt reduction target and accelerate the return of capital to shareholders. Through our focus on enhancing capital efficiency, improving costs and actively managing our portfolio, Concho is positioned to deliver sustainable, competitive growth and superior returns for investors.”

Third-Quarter 2019 Summary

Third-quarter 2019 oil production volumes increased 12% year over year to 206 thousand barrels per day (MBopd). Natural gas production for third-quarter 2019 totaled 744 million cubic feet per day (MMcfpd). The Company’s total production for third-quarter 2019 grew 15% year over year to 330 thousand barrels of oil equivalent per day (MBoepd).

Net income for third-quarter 2019 was $558 million, or $2.78 per share. Special items impacting earnings for the quarter included a $101 million impairment, primarily related to the Company’s New Mexico Shelf assets held for sale, and a $299 million gain on the disposition of assets as a result of the previously-announced contribution of assets to a water infrastructure joint venture. Excluding these and other special items, third-quarter 2019 adjusted net income (non-GAAP) was $122 million, or $0.61 per share. Concho’s average realized price for oil and natural gas for third-quarter 2019, excluding the effect of commodity derivatives, was $54.01 per Bbl and $1.34 per Mcf, respectively. Controllable cash costs, which include lease operating and workover expenses, cash general and administrative expenses and cash interest expense, totaled $9.57 per Boe, representing a 3% decrease year over year. The Company is targeting controllable cash costs of $9.00 per Boe by year-end 2020.

For third-quarter 2019, cash flow from operating activities was $665 million, including $41 million in working capital changes. Operating cash flow before working capital changes (non-GAAP) was $706 million, exceeding third quarter costs incurred for exploration and development activities of $670 million. During third-quarter 2019, the Company materially improved well costs and surpassed its year-end 2019 well cost reduction target of 10%. Drilling, completion & equipment (DC&E) costs totaled $955 per foot, representing a 20% reduction from first-half 2019. DC&E costs were $1,118 per foot in the Delaware Basin and $791 per foot in the Midland Basin.

Additional information on the Company’s operational results is included in the Company’s 3Q 2019 Quarterly Update at www.concho.com.

Strategic Asset Sale Accelerates Value

In September, the Company announced the sale of its New Mexico Shelf assets to an affiliate of Spur Energy Partners LLC for $925 million. The transaction is expected to close in early November and is subject to customary terms, conditions and closing and post-closing adjustments. The Company intends to use the proceeds from the transaction to pay down borrowings on its revolving credit facility and initiate a $1.5 billion share repurchase program. As of September 30, 2019, Concho had long-term debt of approximately $4.3 billion, including $395 million of outstanding borrowings under its credit facility.

Outlook

Fourth-quarter 2019 production is expected to be 318 MBoepd to 325 MBoepd (64% oil), which reflects the impact of the Company’s planned New Mexico Shelf sale. Excluding the impact of the planned asset sale, fourth-quarter 2019 production is expected to be 334 MBoepd to 341 MBoepd (64% oil). Fourth-quarter 2019 gathering, processing and transportation expense and depletion, depreciation and amortization expense are forecasted to be $1.35 per Boe to $1.45 per Boe and $16.50 per Boe to $16.85 per Boe, respectively.

Commodity Derivatives Update

The Company’s commodity derivatives strategy is intended to manage its exposure to commodity price fluctuations. Please see the table under “Derivatives Information” below for detailed information about Concho’s current derivatives positions.

Third-Quarter 2019 Conference Call

Concho will host a conference call tomorrow, October 30, 2019, at 8:00 AM CT (9:00 AM ET) to discuss third-quarter 2019 results. The telephone number and passcode to access the conference call are provided below:

Dial-in: (844) 263-8298
Intl. dial-in: (478) 219-0007
Participant Passcode: 5785506

To access the live webcast and view the related earnings presentation, visit Concho’s website at www.concho.com. The replay will also be available on the Company’s website under the “Investors” section.

About Concho Resources

Concho Resources (NYSE: CXO) is one of the largest unconventional shale producers in the Permian Basin, with operations focused on safely and efficiently developing and producing oil and natural gas resources. We are working today to deliver a better tomorrow for our shareholders, people and communities. For more information about Concho, visit www.concho.com.

Forward-Looking Statements and Cautionary Statements

The foregoing contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. The words “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “could,” “may,” “enable,” “strategy,” “intend," “positioned,” “foresee,” “plan,” “will,” “guidance,” “outlook,” “goal” or other similar expressions that convey the uncertainty of future events or outcomes are intended to identify forward-looking statements, which generally are not historical in nature. However, the absence of these words does not mean that the statements are not forward-looking. These statements are based on certain assumptions and analyses made by the Company based on management’s experience, expectations and perception of historical trends, current conditions, current plans, anticipated future developments, expected financings and other factors believed to be appropriate. Forward-looking statements are not guarantees of performance. Although the Company believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include the risk factors and other information discussed or referenced in the Company’s most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. Information on Concho’s website is not part of this press release.

Use of Non-GAAP Financial Measures

To supplement the presentation of the Company’s financial results prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), this press release contains certain financial measures that are not prepared in accordance with GAAP, including adjusted net income, adjusted earnings per share, adjusted EBITDAX and operating cash flow before working capital changes.

See “Supplemental Non-GAAP Financial Measures” below for a description and reconciliation of each non-GAAP measure presented in this press release to the most directly comparable financial measure calculated in accordance with GAAP.

Concho Resources Inc.

Consolidated Balance Sheets

Unaudited

 

September 30,

 

December 31,

(in millions, except share and per share amounts)

2019

 

2018

Assets

Current assets:

 

 

 

Cash and cash equivalents

$

 

 

$

 

Accounts receivable, net of allowance for doubtful accounts:

 

 

 

Oil and natural gas

535

 

 

466

 

Joint operations and other

263

 

 

365

 

Inventory

30

 

 

35

 

Assets held for sale

930

 

 

 

Derivative instruments

201

 

 

484

 

Prepaid costs and other

58

 

 

59

 

Total current assets

2,017

 

 

1,409

 

Property and equipment:

 

 

 

Oil and natural gas properties, successful efforts method

28,497

 

 

31,706

 

Accumulated depletion and depreciation

(7,477

)

 

(9,701

)

Total oil and natural gas properties, net

21,020

 

 

22,005

 

Other property and equipment, net

408

 

 

308

 

Total property and equipment, net

21,428

 

 

22,313

 

Deferred loan costs, net

8

 

 

10

 

Goodwill

2,141

 

 

2,224

 

Intangible assets, net

17

 

 

19

 

Noncurrent derivative instruments

121

 

 

211

 

Other assets

400

 

 

108

 

Total assets

$

26,132

 

 

$

26,294

 

Liabilities and Stockholders’ Equity

Current liabilities:

 

 

 

Accounts payable - trade

$

66

 

 

$

50

 

Book overdrafts

55

 

 

159

 

Revenue payable

220

 

 

253

 

Accrued drilling costs

471

 

 

574

 

Liabilities held for sale

69

 

 

 

Derivative instruments

15

 

 

 

Other current liabilities

444

 

 

320

 

Total current liabilities

1,340

 

 

1,356

 

Long-term debt

4,349

 

 

4,194

 

Deferred income taxes

1,783

 

 

1,808

 

Noncurrent derivative instruments

 

 

 

Asset retirement obligations and other long-term liabilities

149

 

 

168

 

Stockholders’ equity:

 

 

 

Common stock, $0.001 par value; 300,000,000 authorized; 202,216,989 and 201,288,884 shares issued at September 30, 2019 and December 31, 2018, respectively

 

 

 

Additional paid-in capital

14,840

 

 

14,773

 

Retained earnings

3,817

 

 

4,126

 

Treasury stock, at cost; 1,172,545 and 1,031,655 shares at September 30, 2019 and December 31, 2018, respectively

(146

)

 

(131

)

Total stockholders’ equity

18,511

 

 

18,768

 

Total liabilities and stockholders’ equity

$

26,132

 

 

$

26,294

 

 

 

 

 

Concho Resources Inc.

Consolidated Statements of Operations

Unaudited

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

(in millions, except per share amounts)

2019

 

2018

 

2019

 

2018

Operating revenues:

 

 

 

 

 

 

 

Oil sales

$

1,023

 

 

$

957

 

 

$

3,007

 

 

$

2,545

 

Natural gas sales

92

 

 

235

 

 

339

 

 

539

 

Total operating revenues

1,115

 

 

1,192

 

 

3,346

 

 

3,084

 

Operating costs and expenses:

 

 

 

 

 

 

 

Oil and natural gas production

190

 

 

156

 

 

552

 

 

416

 

Production and ad valorem taxes

85

 

 

89

 

 

255

 

 

229

 

Gathering, processing and transportation

25

 

 

16

 

 

73

 

 

36

 

Exploration and abandonments

26

 

 

10

 

 

90

 

 

36

 

Depreciation, depletion and amortization

488

 

 

406

 

 

1,431

 

 

1,033

 

Accretion of discount on asset retirement obligations

3

 

 

3

 

 

8

 

 

7

 

Impairments of long-lived assets

101

 

 

 

 

969

 

 

 

General and administrative (including non-cash stock-based compensation of $20 and $23 for the three months ended September 30, 2019 and 2018, respectively, and $67 and $58 for the nine months ended September 30, 2019 and 2018, respectively)

75

 

 

84

 

 

254

 

 

221

 

(Gain) loss on derivatives

(397

)

 

625

 

 

445

 

 

793

 

(Gain) loss on disposition of assets, net

(303

)

 

5

 

 

(303

)

 

(719

)

Transaction costs

 

 

23

 

 

1

 

 

39

 

Total operating costs and expenses

293

 

 

1,417

 

 

3,775

 

 

2,091

 

Income (loss) from operations

822

 

 

(225

)

 

(429

)

 

993

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense

(46

)

 

(46

)

 

(141

)

 

(103

)

Other, net

4

 

 

3

 

 

311

 

 

108

 

Total other income (expense)

(42

)

 

(43

)

 

170

 

 

5

 

Income (loss) before income taxes

780

 

 

(268

)

 

(259

)

 

998

 

Income tax (expense) benefit

(222

)

 

69

 

 

25

 

 

(225

)

Net income (loss)

$

558

 

 

$

(199

)

 

$

(234

)

 

$

773

 

Earnings per share:

 

 

 

 

 

 

 

Basic net income (loss)

$

2.78

 

 

$

(1.05

)

 

$

(1.18

)

 

$

4.74

 

Diluted net income (loss)

$

2.78

 

 

$

(1.05

)

 

$

(1.18

)

 

$

4.74

 

 

 

 

 

 

 

 

 

Concho Resources Inc.
Earnings per Share
Unaudited

The Company uses the two-class method of calculating earnings per share because certain of the Company’s unvested share-based awards qualify as participating securities.

The Company’s basic earnings (loss) per share attributable to common stockholders is computed as (i) net income (loss) as reported, (ii) less participating basic earnings (iii) divided by weighted average basic common shares outstanding. The Company’s diluted earnings (loss) per share attributable to common stockholders is computed as (i) basic earnings (loss) attributable to common stockholders, (ii) plus reallocation of participating earnings (iii) divided by weighted average diluted common shares outstanding.

The following table reconciles the Company’s earnings (loss) from operations and earnings (loss) attributable to common stockholders to the basic and diluted earnings (loss) used to determine the Company’s earnings per share amounts for the periods indicated under the two-class method:

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

(in millions)

2019

 

2018

 

2019

 

2018

Net income (loss) as reported

$

558

 

 

$

(199

)

 

$

(234

)

 

$

773

 

Participating basic earnings (a)

(4

)

 

 

 

(1

)

 

(6

)

Basic earnings (loss) attributable to common stockholders

554

 

 

(199

)

 

(235

)

 

767

 

Reallocation of participating earnings

 

 

 

 

 

 

 

Diluted earnings (loss) attributable to common stockholders

$

554

 

 

$

(199

)

 

$

(235

)

 

$

767

 

 

 

 

 

 

 

 

 

(a) Unvested restricted stock awards represent participating securities because they participate in nonforfeitable dividends or distributions with the common equity holders of the Company. Participating earnings represent the distributed and undistributed earnings of the Company attributable to the participating securities. Unvested restricted stock awards do not participate in undistributed net losses as they are not contractually obligated to do so.

The following table is a reconciliation of the basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the periods indicated:

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

(in thousands)

2019

 

2018

 

2019

 

2018

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

199,448

 

 

188,953

 

 

199,272

 

 

161,605

 

Dilutive performance units

6

 

 

 

 

 

 

342

 

Diluted

199,454

 

 

188,953

 

 

199,272

 

 

161,947

 

 

 

 

 

 

 

 

 

Concho Resources Inc.

Consolidated Statements of Cash Flows

Unaudited

 

Nine Months Ended

September 30,

(in millions)

2019

 

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net income (loss)

$

(234

)

 

$

773

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

Depreciation, depletion and amortization

1,431

 

 

1,033

 

Accretion of discount on asset retirement obligations

8

 

 

7

 

Impairments of long-lived assets

969

 

 

 

Exploration and abandonments

68

 

 

20

 

Non-cash stock-based compensation expense

67

 

 

58

 

Deferred income taxes

(25

)

 

225

 

Net gain on disposition of assets and other non-operating items

(591

)

 

(719

)

Loss on derivatives

445

 

 

793

 

Net settlements paid on derivatives

(57

)

 

(238

)

Other

(6

)

 

(94

)

Changes in operating assets and liabilities, net of acquisitions and dispositions:

 

 

 

Accounts receivable

(19

)

 

(57

)

Prepaid costs and other

(1

)

 

(15

)

Inventory

2

 

 

(12

)

Accounts payable

16

 

 

(27

)

Revenue payable

(20

)

 

62

 

Other current liabilities

14

 

 

52

 

Net cash provided by operating activities

2,067

 

 

1,861

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

Additions to oil and natural gas properties

(2,385

)

 

(1,669

)

Acquisitions of oil and natural gas properties

(34

)

 

(105

)

Additions to property, equipment and other assets

(82

)

 

(53

)

Proceeds from the disposition of assets

393

 

 

260

 

Deposit for pending divestiture of oil and natural gas properties

93

 

 

 

Direct transaction costs for asset acquisitions and dispositions

(5

)

 

(3

)

Distribution from equity method investment

 

 

148

 

Net cash used in investing activities

(2,020

)

 

(1,422

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Borrowings under credit facility

2,680

 

 

2,408

 

Payments on credit facility

(2,527

)

 

(2,537

)

Issuance of senior notes, net

 

 

1,595

 

Repayments of RSP debt

 

 

(1,690

)

Debt extinguishment costs

 

 

(83

)

Payments for loan costs

 

 

(16

)

Payment of common stock dividends

(75

)

 

 

Purchases of treasury stock

(15

)

 

(63

)

Decrease in book overdrafts

(104

)

 

(29

)

Other

(6

)

 

 

Net cash used in financing activities

(47

)

 

(415

)

Net increase in cash and cash equivalents

 

 

24

 

Cash and cash equivalents at beginning of period

 

 

 

Cash and cash equivalents at end of period

$

 

 

$

24

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

Issuance of common stock for business combinations

$

 

 

$

7,549

 

 

 

 

 

Concho Resources Inc.

Summary Production and Price Data

Unaudited

The following table sets forth summary information concerning production and operating data for the periods indicated:

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

Production and operating data:

 

 

 

 

 

 

 

Net production volumes:

 

 

 

 

 

 

 

Oil (MBbl)

18,940

 

 

16,979

 

 

56,602

 

 

42,947

 

Natural gas (MMcf)

68,411

 

 

56,348

 

 

199,284

 

 

148,633

 

Total (MBoe)

30,342

 

 

26,370

 

 

89,816

 

 

67,719

 

 

 

 

 

 

 

 

 

Average daily production volumes:

 

 

 

 

 

 

 

Oil (Bbl)

205,870

 

 

184,554

 

 

207,333

 

 

157,315

 

Natural gas (Mcf)

743,598

 

 

612,478

 

 

729,978

 

 

544,443

 

Total (Boe)

329,803

 

 

286,634

 

 

328,996

 

 

248,056

 

 

 

 

 

 

 

 

 

Average prices per unit: (a)

 

 

 

 

 

 

 

Oil, without derivatives (Bbl)

$

54.01

 

 

$

56.38

 

 

$

53.13

 

 

$

59.25

 

Oil, with derivatives (Bbl) (b)

$

52.84

 

 

$

53.67

 

 

$

51.85

 

 

$

53.55

 

Natural gas, without derivatives (Mcf)

$

1.34

 

 

$

4.18

 

 

$

1.70

 

 

$

3.63

 

Natural gas, with derivatives (Mcf) (b)

$

1.54

 

 

$

4.21

 

 

$

1.77

 

 

$

3.67

 

Total, without derivatives (Boe)

$

36.74

 

 

$

45.23

 

 

$

37.25

 

 

$

45.54

 

Total, with derivatives (Boe) (b)

$

36.46

 

 

$

43.56

 

 

$

36.60

 

 

$

42.02

 

 

 

 

 

 

 

 

 

Operating costs and expenses per Boe: (a)

 

 

 

 

 

 

 

Oil and natural gas production

$

6.26

 

 

$

5.93

 

 

$

6.14

 

 

$

6.15

 

Production and ad valorem taxes

$

2.79

 

 

$

3.37

 

 

$

2.84

 

 

$

3.38

 

Gathering, processing and transportation

$

0.82

 

 

$

0.60

 

 

$

0.81

 

 

$

0.53

 

Depreciation, depletion and amortization

$

16.07

 

 

$

15.43

 

 

$

15.93

 

 

$

15.27

 

General and administrative

$

2.50

 

 

$

3.13

 

 

$

2.82

 

 

$

3.26

 

(a)

Per unit and per Boe amounts calculated using dollars and volumes rounded to thousands.

 

 

 

 

 

 

 

 

 

(b)

Includes the effect of net cash receipts from (payments on) derivatives:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(in millions)

2019

 

2018

 

2019

 

2018

 

Net cash receipts from (payments on) derivatives:

 

 

 

 

 

 

 

 

Oil derivatives

$

(21

)

 

$

(46

)

 

$

(72

)

 

$

(245

)

 

Natural gas derivatives

14

 

 

2

 

 

15

 

 

7

 

 

Total

$

(7

)

 

$

(44

)

 

$

(57

)

 

$

(238

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The presentation of average prices with derivatives is a result of including the net cash receipts from (payments on) commodity derivatives that are presented in the Company's consolidated statements of cash flows. This presentation of average prices with derivatives is a means by which to reflect the actual cash performance of the Company's commodity derivatives for the respective periods and presents oil and natural gas prices with derivatives in a manner consistent with the presentation generally used by the investment community.

 

 

 

 

 

 

 

 

 

Concho Resources Inc.

Operational Activity

Unaudited

The tables below provide a summary of operational activity for third-quarter 2019:

Total Activity (Gross):

 

 

 

 

 

 

 

 

Number of Wells
Drilled

 

Number of Wells
Completed

 

Number of Wells
Put on Production

Delaware Basin

 

69

 

71

 

57

Midland Basin

 

40

 

28

 

54

Total

 

109

 

99

 

111

 

 

 

 

 

Total Activity (Gross Operated):

 

 

 

 

 

 

 

 

Number of Wells
Drilled

 

Number of Wells
Completed

 

Number of Wells
Put on Production

Delaware Basin

 

30

 

49

 

27

Midland Basin

 

33

 

28

 

47

Total

 

63

 

77

 

74

 

 

 

 

 

Total Activity (Net Operated):

 

 

 

 

 

 

 

 

Number of Wells
Drilled

 

Number of Wells
Completed

 

Number of Wells
Put on Production

Delaware Basin

 

20

 

40

 

19

Midland Basin

 

24

 

26

 

39

Total

 

44

 

66

 

58

 

 

 

 

 

 

 

Concho Resources Inc.

Costs Incurred

Unaudited

The table below provides the costs incurred for oil and natural gas producing activities for the periods indicated:

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

(in millions)

2019

 

2018

 

2019

 

2018

Property acquisition costs:

 

 

 

 

 

 

 

Proved

$

 

 

$

4,126

 

 

$

 

 

$

4,126

 

Unproved

20

 

 

3,578

 

 

33

 

 

3,596

 

Exploration (a)

412

 

 

481

 

 

1,309

 

 

1,059

 

Development (a)

258

 

 

280

 

 

1,072

 

 

653

 

Total costs incurred

$

690

 

 

$

8,465

 

 

$

2,414

 

 

$

9,434

 

 

 

 

 

 

 

 

 

(a) Asset retirement obligations included in the Company's costs incurred for oil and natural gas producing activities were $13 million and $1 million for the three months ended September 30, 2019 and 2018, respectively, and $16 million and $2 million for the nine months ended September 30, 2019 and 2018, respectively. Asset retirement obligations for the three and nine months ended September 30, 2019 were primarily the result of revised estimated future abandonment costs.

Concho Resources Inc.

Derivatives Information

Unaudited

The table below provides data associated with the Company’s derivatives at October 29, 2019, for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

2020

 

 

 

 

Fourth
Quarter

 

First
Quarter

 

Second
Quarter

 

Third
Quarter

 

Fourth
Quarter

 

Total

 

2021

Oil Price Swaps WTI: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MBbl)

 

13,469

 

 

12,517

 

 

11,075

 

 

10,067

 

 

9,586

 

 

43,245

 

 

17,517

 

Price per Bbl

 

$

56.46

 

 

$

57.01

 

 

$

56.88

 

 

$

56.93

 

 

$

57.01

 

 

$

56.96

 

 

$

54.30

 

Oil Price Swaps Brent: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MBbl)

 

2,178

 

 

1,456

 

 

1,456

 

 

1,472

 

 

1,472

 

 

5,856

 

 

 

Price per Bbl

 

$

62.08

 

 

$

60.12

 

 

$

60.12

 

 

$

60.12

 

 

$

60.12

 

 

$

60.12

 

 

$

 

Oil Costless Collars: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MBbl)

 

1,058

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceiling price per Bbl

 

$

62.95

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Floor price per Bbl

 

$

55.43

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Oil Basis Swaps: (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MBbl)

 

16,053

 

 

14,651

 

 

10,647

 

 

10,580

 

 

10,120

 

 

45,998

 

 

16,790

 

Price per Bbl

 

$

(2.19

)

 

$

(0.46

)

 

$

(0.65

)

 

$

(0.66

)

 

$

(0.71

)

 

$

(0.60

)

 

$

0.60

 

Natural Gas Price Swaps - Henry Hub: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume (BBtu)

 

37,750

 

 

35,024

 

 

32,313

 

 

30,038

 

 

28,498

 

 

125,873

 

 

36,500

 

Price per MMBtu

 

$

2.51

 

 

$

2.46

 

 

$

2.46

 

 

$

2.47

 

 

$

2.47

 

 

$

2.47

 

 

$

2.52

 

Natural Gas Basis Swaps - HH/EPP: (e)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume (BBtu)

 

28,820

 

 

25,770

 

 

23,960

 

 

22,080

 

 

21,770

 

 

93,580

 

 

36,500

 

Price per MMBtu

 

$

(0.76

)

 

$

(1.06

)

 

$

(1.07

)

 

$

(1.07

)

 

$

(1.07

)

 

$

(1.07

)

 

$

(0.66

)

Natural Gas Basis Swaps - HH/WAHA: (f)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volume (BBtu)

 

9,200

 

 

7,280

 

 

7,280

 

 

7,360

 

 

7,360

 

 

29,280

 

 

10,950

 

Price per MMBtu

 

$

(0.77

)

 

$

(1.10

)

 

$

(1.10

)

 

$

(1.10

)

 

$

(1.10

)

 

$

(1.10

)

 

$

(0.66

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

These oil derivative contracts are settled based on the New York Mercantile Exchange (“NYMEX”) – West Texas Intermediate (“WTI”) calendar-month average futures price.

(b)

These oil derivative contracts are settled based on the Brent calendar-month average futures price.

(c)

 

The basis differential price is between Midland – WTI and Cushing – WTI. The majority of these contracts are settled on a calendar-month basis, while certain contracts assumed in connection with the RSP acquisition are settled on a trading-month basis.

(d)

The natural gas derivative contracts are settled based on the NYMEX – Henry Hub last trading day futures price.

(e)

The basis differential price is between NYMEX – Henry Hub and El Paso Permian.

(f)

The basis differential price is between NYMEX – Henry Hub and WAHA.

 

Concho Resources Inc.
Supplemental Non-GAAP Financial Measures
Unaudited

The Company reports its financial results in accordance with the United States generally accepted accounting principles (GAAP). However, the Company believes certain non-GAAP performance measures may provide financial statement users with additional meaningful comparisons between current results, the results of its peers and the results of prior periods. In addition, the Company believes these measures are used by analysts and others in the valuation, rating and investment recommendations of companies within the oil and natural gas exploration and production industry. See the reconciliations throughout this release of GAAP financial measures to non-GAAP financial measures for the periods indicated.

Reconciliation of Net Income (Loss) to Adjusted Net Income and Adjusted Earnings per Share

The Company’s presentation of adjusted net income and adjusted earnings per share that exclude the effect of certain items are non-GAAP financial measures. Adjusted net income and adjusted earnings per share represent earnings (loss) and diluted earnings (loss) per share determined under GAAP without regard to certain non-cash and special items. The Company believes these measures provide useful information to analysts and investors for analysis of its operating results on a recurring, comparable basis from period to period. Adjusted net income and adjusted earnings per share should not be considered in isolation or as a substitute for earnings (loss) or diluted earnings (loss) per share as determined in accordance with GAAP and may not be comparable to other similarly titled measures of other companies.

The following table provides a reconciliation from the GAAP measure of net income (loss) to adjusted net income, both in total and on a per diluted share basis, for the periods indicated:

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

(in millions, except per share amounts)

2019

 

2018

 

2019

 

2018

Net income (loss) - as reported

$

558

 

 

$

(199

)

 

$

(234

)

 

$

773

 

Adjustments for certain non-cash and special items:

 

 

 

 

 

 

 

(Gain) loss on derivatives

(397

)

 

625

 

 

445

 

 

793

 

Net cash payments on derivatives

(7

)

 

(44

)

 

(57

)

 

(238

)

Impairments of long-lived assets

101

 

 

 

 

969

 

 

 

Leasehold abandonments

17

 

 

6

 

 

59

 

 

20

 

(Gain) loss on disposition of assets and other

(303

)

 

5

 

 

(589

)

 

(711

)

Gain on equity method investments

 

 

 

 

(17

)

 

(103

)

RSP transaction costs

 

 

23

 

 

 

 

33

 

Tax impact (a)

152

 

 

(140

)

 

(165

)

 

47

 

Changes in deferred taxes and other estimates

1

 

 

(7

)

 

(6

)

 

(10

)

Adjusted net income

$

122

 

 

$

269

 

 

$

405

 

 

$

604

 

Earnings (loss) per diluted share - as reported

$

2.78

 

 

$

(1.05

)

 

$

(1.18

)

 

$

4.74

 

Adjustments for certain non-cash and special items per diluted share:

 

 

 

 

 

 

 

(Gain) loss on derivatives

(1.98

)

 

3.29

 

 

2.24

 

 

4.85

 

Net cash payments on derivatives

(0.03

)

 

(0.23

)

 

(0.29

)

 

(1.45

)

Impairments of long-lived assets

0.50

 

 

 

 

4.85

 

 

 

Leasehold abandonments

0.08

 

 

0.03

 

 

0.30

 

 

0.12

 

(Gain) loss on disposition of assets and other

(1.51

)

 

0.03

 

 

(2.95

)

 

(4.35

)

Gain on equity method investments

 

 

 

 

(0.09

)

 

(0.63

)

RSP transaction costs

 

 

0.12

 

 

 

 

0.20

 

Tax impact

0.77

 

 

(0.73

)

 

(0.83

)

 

0.28

 

Changes in deferred taxes and other estimates

 

 

(0.04

)

 

(0.03

)

 

(0.06

)

Adjusted earnings per diluted share

$

0.61

 

 

$

1.42

 

 

$

2.02

 

 

$

3.70

 

Adjusted earnings per share:

 

 

 

 

 

 

 

Basic earnings

$

0.61

 

 

$

1.42

 

 

$

2.02

 

 

$

3.71

 

Diluted earnings

$

0.61

 

 

$

1.42

 

 

$

2.02

 

 

$

3.70

 

 

 

 

 

 

 

 

 

(a) Estimated using statutory tax rate in effect for the period.

 

 

 

 

 

 

 

 

Reconciliation of Net Income (Loss) to Adjusted EBITDAX

Adjusted EBITDAX (as defined below) is presented herein and reconciled from the GAAP measure of net income (loss) because of its wide acceptance by the investment community as a financial indicator.

The Company defines adjusted EBITDAX as net income (loss), plus (1) exploration and abandonments, (2) depreciation, depletion and amortization, (3) accretion of discount on asset retirement obligations, (4) impairments of long-lived assets, (5) non-cash stock-based compensation, (6) (gain) loss on derivatives, (7) net cash payments on derivatives, (8) (gain) loss on disposition of assets and other, (9) interest expense, (10) gain on equity method investments, (11) RSP transaction costs and (12) income tax expense (benefit). Adjusted EBITDAX is not a measure of net income (loss) or cash flows as determined by GAAP.

The Company’s adjusted EBITDAX measure provides additional information that may be used to better understand the Company’s operations. Adjusted EBITDAX is one of several metrics that the Company uses as a supplemental financial measurement in the evaluation of its business and should not be considered as an alternative to, or more meaningful than, net income (loss) as an indicator of operating performance. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX, as used by the Company, may not be comparable to similarly titled measures reported by other companies. The Company believes that adjusted EBITDAX is a widely followed measure of operating performance and is one of many metrics used by the Company’s management team and by other users of the Company’s consolidated financial statements. For example, adjusted EBITDAX can be used to assess the Company’s operating performance and return on capital in comparison to other independent exploration and production companies without regard to financial or capital structure, and to assess the financial performance of the Company’s assets and the Company without regard to capital structure or historical cost basis.

The following table provides a reconciliation of the GAAP measure of net income (loss) to adjusted EBITDAX for the periods indicated:

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

(in millions)

2019

 

2018

 

2019

 

2018

Net income (loss)

$

558

 

 

$

(199

)

 

$

(234

)

 

$

773

 

Exploration and abandonments

26

 

 

10

 

 

90

 

 

36

 

Depreciation, depletion and amortization

488

 

 

406

 

 

1,431

 

 

1,033

 

Accretion of discount on asset retirement obligations

3

 

 

3

 

 

8

 

 

7

 

Impairments of long-lived assets

101

 

 

 

 

969

 

 

 

Non-cash stock-based compensation

20

 

 

23

 

 

67

 

 

58

 

(Gain) loss on derivatives

(397

)

 

625

 

 

445

 

 

793

 

Net cash payments on derivatives

(7

)

 

(44

)

 

(57

)

 

(238

)

(Gain) loss on disposition of assets and other

(303

)

 

5

 

 

(589

)

 

(719

)

Interest expense

46

 

 

46

 

 

141

 

 

103

 

Gain on equity method investments

 

 

 

 

(17

)

 

(103

)

RSP transaction costs

 

 

23

 

 

 

 

33

 

Income tax expense (benefit)

222

 

 

(69

)

 

(25

)

 

225

 

Adjusted EBITDAX

$

757

 

 

$

829

 

 

$

2,229

 

 

$

2,001

 

 

 

 

 

 

 

 

 

Reconciliation of Net Cash Provided by Operating Activities to Operating Cash Flow ("OCF") Before Working Capital Changes

The Company provides OCF before working capital changes, which is a non-GAAP financial measure. OCF before working capital changes represents net cash provided by operating activities as determined under GAAP without regard to changes in operating assets and liabilities, net of acquisitions and dispositions as determined in accordance with GAAP. The Company believes OCF before working capital changes is an accepted measure of an oil and natural gas company’s ability to generate cash used to fund development and acquisition activities and service debt or pay dividends. This non-GAAP measure should not be considered as an alternative to, or more meaningful than, net cash provided by operating activities as an indicator of operating performance.

The following table provides a reconciliation from the GAAP measure of net cash provided by operating activities to OCF before working capital changes:

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

(in millions)

2019

 

2018

 

2019

 

2018

Net cash provided by operating activities

$

665

 

 

$

771

 

 

$

2,067

 

 

$

1,861

 

Changes in cash due to changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

52

 

 

1

 

 

19

 

 

57

 

Prepaid costs and other

5

 

 

(7

)

 

1

 

 

15

 

Inventory

(1

)

 

9

 

 

(2

)

 

12

 

Accounts payable

(11

)

 

32

 

 

(16

)

 

27

 

Revenue payable

25

 

 

(19

)

 

20

 

 

(62

)

Other current liabilities

(29

)

 

(30

)

 

(14

)

 

(52

)

Total working capital changes

41

 

 

(14

)

 

8

 

 

(3

)

Operating cash flow before working capital changes

$

706

 

 

$

757

 

 

$

2,075

 

 

$

1,858

 

 

 

 

 

 

 

 

 

 

INVESTOR RELATIONS
Megan P. Hays
Vice President of Investor Relations & Public Affairs
432.685.2533

MEDIA
Mary T. Starnes
Manager of Public Affairs & Corporate Responsibility Strategy
432.221.0477

Source: Concho Resources Inc.

Concho Resources Inc. is an independent exploration and production company engaged in the acquisition, development and exploration of oil and natural gas properties. Concho’s operations are concentrated in the Permian Basin of Southeast New Mexico and West Texas.