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September 8, 2020MMMM d, yyy Barclays Presentation
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Press Release Details

Concho Resources Inc. Reports First-Quarter 2020 Results; Updates 2020 Outlook

04/30/2020

Delivers Strong Results for First-Quarter 2020

Further Reducing 2020 Capital Plans, Reinforcing Strong Financial Position

MIDLAND, Texas--(BUSINESS WIRE)-- Concho Resources Inc. (NYSE: CXO) today reported financial and operating results for first-quarter 2020.

First-Quarter 2020 Highlights

  • Delivered oil production volumes of 209 MBopd, exceeding the high end of the Company’s guidance range.
  • Generated cash flow from operating activities of $836 million. Operating cash flow before working capital changes (non-GAAP) was $744 million, exceeding capital expenditures of $556 million and resulting in $188 million of free cash flow (non-GAAP).
  • Included in the Company’s first-quarter 2020 results are $12.6 billion in impairment charges related to the substantial weakness in commodity prices. As such, the Company reported a net loss of $9.3 billion, or $47.49 per share.
  • Adjusted net income (non-GAAP) totaled $142 million, or $0.72 per share.
  • Generated $784 million of adjusted EBITDAX (non-GAAP).
  • Returned capital to shareholders through the Company’s common dividend of $0.20 per share, up 60% year over year, and $100 million of share repurchases.

2020 Outlook Update

  • Further reducing planned capital expenditures to $1.6 billion, representing a 40% decrease from the Company’s initial capital spending expectations for the year.
  • Targeting $100 million in operating and G&A cost reductions.
  • The Company expects production to remain relatively consistent with 2019 divestiture-adjusted production volumes. The Company’s production outlook includes current voluntary curtailments, but does not include any potential future curtailments.

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, “This is an extremely challenging environment, but our first priority is the safety and well-being of our employees, business partners and communities. Due to the hard work and dedication of our team, we delivered strong operational and financial results for the first quarter. The operating environment has changed considerably since our last update, and we expect a sustained period of low commodity prices. We are managing through the volatility and uncertainty from a position of strength, which we are focused on maintaining by aligning our operations with current market realities. We are further reducing capital spending in 2020 and targeting $100 million in operating cost reductions. We expect these actions will improve our capital efficiency and better position Concho to deliver value over the long term.”

First-Quarter 2020 Summary

First-quarter 2020 oil production volumes totaled 209 thousand barrels per day (MBopd), compared with 210 MBopd produced in the same period a year ago. Natural gas production for first-quarter 2020 totaled 699 million cubic feet per day (MMcfpd). The Company’s total production for first-quarter 2020 was 326 thousand barrels of oil equivalent per day (MBoepd), compared with 328 MBoepd produced in the same period a year ago.

Concho’s average realized price for oil and natural gas for first-quarter 2020, excluding the effect of commodity derivatives, was $45.85 per Bbl and $0.79 per Mcf, respectively.

Net loss for first-quarter 2020 was $9.3 billion, or $47.49 per share. Special items impacting earnings for the quarter included non-cash impairment charges primarily related to the Company’s proved and unproved oil and natural gas assets and goodwill. These impairment charges are due to the substantial weakness in equity markets due to the COVID-19 pandemic and the substantial decline in commodity prices. Excluding these and other special items, adjusted net income (non-GAAP) for first-quarter 2020 was $142 million, or $0.72 per share.

Continued Cost Performance; Further Improving Cost Structure in 2020

For first-quarter 2020, controllable costs totaled $8.68 per Boe, representing an 11% decrease year over year and below the Company’s full-year 2020 controllable cost target of $9.00 per Boe. Controllable costs include production expenses (consisting of lease operating and workover expenses), cash general and administrative (G&A) expenses (which excludes non-cash stock-based compensation) and interest expense.

Concho will continue focusing on improving its operating cost structure and is targeting $100 million in reductions across production expenses and cash G&A in 2020. These reductions would enable the Company to hold controllable costs below $9.00 per Boe despite current expectations for production volumes that are lower than previously contemplated under the Company’s initial 2020 outlook.

Generated Strong Cash Flow

For first-quarter 2020, cash flow from operating activities was $836 million, including $92 million in working capital changes. Operating cash flow before working capital changes (non-GAAP) was $744 million, exceeding first-quarter capital expenditures of $556 million. Capital expenditures refers to the Company’s additions to oil and natural gas properties on the Company’s consolidated statements of cash flows.

During January 2020, the Company repurchased approximately 1.1 million shares for $100 million. Since initiating the repurchase program in fourth-quarter 2019, the Company has repurchased approximately 4.4 million shares for $350 million, which represents approximately 40% of the proceeds from the Company’s New Mexico Shelf sale.

Significant Financial Flexibility

Concho maintains a strong financial position with investment-grade credit ratings and substantial liquidity. At March 31, 2020, Concho had long-term debt of $4 billion, with no outstanding debt maturities until January 2025 and no debt outstanding under its credit facility. Additionally, at March 31, 2020, the Company had cash of $165 million and approximately $2.2 billion of liquidity.

Hedge Position Mitigates Cash Flow Volatility

The Company’s commodity derivatives strategy mitigates Concho’s exposure to commodity price fluctuations. For the remainder of 2020, Concho has crude oil swap contracts covering approximately 138 MBopd and 25 MBopd at weighted average prices of $54 per Bbl WTI and $54 per Bbl Brent, respectively. Additionally, the Company has approximately 140 MBopd of Midland-Cushing oil basis swaps at a weighted average price of $(0.64) per Bbl, which mitigates exposure to field-level pricing weakness. At March 31, 2020, Concho had a net derivative asset of approximately $1.5 billion.

Please see the table under “Derivatives Information” below for detailed information about Concho’s current derivatives positions.

Further Reducing 2020 Capital Program

Concho continues to prudently and dynamically manage its capital program in response to challenging macroeconomic conditions, the severe decline in commodity prices and reduced demand for oil and natural gas. The Company is further reducing 2020 capital expenditures to approximately $1.6 billion, which represents a 40% decrease from the Company’s initial 2020 capital guidance. For the remainder of 2020, Concho expects to average approximately 8 rigs and complete approximately 110 to 130 gross operated wells. This level of investment under current market conditions:

  • Reinforces one of the sector’s strongest balance sheets;
  • Generates substantial free cash flow in 2020;
  • Maintains the Company’s commitment to returning capital to shareholders; and
  • Preserves the Company’s operational capacity and development opportunities, which the Company can execute in a more conducive investment environment.

The Company expects full-year 2020 oil production to be approximately flat with 2019 divestiture-adjusted oil production volumes of 197 MBopd. The Company’s production guidance reflects voluntarily curtailed volumes, which are primarily associated with low-margin vertical wells. However, Concho’s production guidance does not reflect incremental curtailments that may arise as a result of further deteriorating crude oil supply and demand fundamentals or economic conditions, including field-level commodity prices. Additionally, given the unique and challenging operating environment, the Company is withholding detailed quarterly and annual guidance.

First-Quarter 2020 Conference Call

Concho will host a conference call tomorrow, May 1, 2020, at 8:00 AM CT (9:00 AM ET) to discuss first-quarter 2020 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: 7526676

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,” "target" 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, the impact of the COVID-19 pandemic 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. In particular, the unprecedented nature of the current economic downturn, pandemic and industry decline may make it particularly difficult to identify risks or predict the degree to which identified risks will impact the Company’s business and financial condition. 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, operating cash flow before working capital changes and free cash flow.

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

 

(in millions, except share and per share amounts)

March 31,
2020

 

December 31,
2019

Assets

Current assets:

 

 

 

Cash and cash equivalents

$

165

 

 

$

70

 

Accounts receivable, net:

 

 

 

Oil and natural gas

472

 

 

584

 

Joint operations and other

298

 

 

304

 

Inventory

25

 

 

30

 

Derivative instruments

1,241

 

 

6

 

Prepaid costs and other

59

 

 

61

 

Total current assets

2,260

 

 

1,055

 

Property and equipment:

 

 

 

Oil and natural gas properties, successful efforts method

26,644

 

 

28,785

 

Accumulated depletion and depreciation

(16,182

)

 

(7,895

)

Total oil and natural gas properties, net

10,462

 

 

20,890

 

Other property and equipment, net

449

 

 

437

 

Total property and equipment, net

10,911

 

 

21,327

 

Deferred loan costs, net

6

 

 

7

 

Goodwill

 

 

1,917

 

Intangible assets, net

17

 

 

17

 

Noncurrent derivative instruments

225

 

 

11

 

Other assets

195

 

 

398

 

Total assets

$

13,614

 

 

$

24,732

 

Liabilities and Stockholders’ Equity

Current liabilities:

 

 

 

Accounts payable - trade

$

80

 

 

$

53

 

Revenue payable

260

 

 

268

 

Accrued drilling costs

382

 

 

386

 

Derivative instruments

 

 

112

 

Other current liabilities

324

 

 

363

 

Total current liabilities

1,046

 

 

1,182

 

Long-term debt

3,956

 

 

3,955

 

Deferred income taxes

87

 

 

1,654

 

Noncurrent derivative instruments

 

 

7

 

Asset retirement obligations and other long-term liabilities

146

 

 

152

 

Stockholders’ equity:

 

 

 

Common stock, $0.001 par value; 300,000,000 authorized; 197,930,291 and 198,863,681 shares issued at March 31, 2020 and December 31, 2019, respectively

 

 

 

Additional paid-in capital

14,526

 

 

14,608

 

Retained earnings (accumulated deficit)

(5,997

)

 

3,320

 

Treasury stock, at cost; 1,225,682 and 1,175,026 shares at March 31, 2020 and December 31, 2019, respectively

(150

)

 

(146

)

Total stockholders’ equity

8,379

 

 

17,782

 

Total liabilities and stockholders’ equity

$

13,614

 

 

$

24,732

 

 

 

 

 

 

Concho Resources Inc.

Consolidated Statements of Operations

Unaudited

 

 

Three Months Ended
March 31,

(in millions, except per share amounts)

2020

 

2019

Operating revenues:

 

 

 

Oil sales

$

872

 

 

$

935

 

Natural gas sales

50

 

 

169

 

Total operating revenues

922

 

 

1,104

 

Operating costs and expenses:

 

 

 

Oil and natural gas production

164

 

 

174

 

Production and ad valorem taxes

74

 

 

86

 

Gathering, processing and transportation

50

 

 

26

 

Exploration and abandonments

2,719

 

 

47

 

Depreciation, depletion and amortization

524

 

 

465

 

Accretion of discount on asset retirement obligations

2

 

 

3

 

Impairments of long-lived assets

7,772

 

 

 

Impairments of goodwill

1,917

 

 

 

General and administrative (including non-cash stock-based compensation of $18 and $24 for the three months ended March 31, 2020 and 2019, respectively)

69

 

 

91

 

(Gain) loss on derivatives

(1,769

)

 

1,059

 

(Gain) loss on disposition of assets, net

5

 

 

(1

)

Transaction costs

2

 

 

 

Total operating costs and expenses

11,529

 

 

1,950

 

Loss from operations

(10,607

)

 

(846

)

Other income (expense):

 

 

 

Interest expense

(42

)

 

(47

)

Other, net

(195

)

 

4

 

Total other expense

(237

)

 

(43

)

Loss before income taxes

(10,844

)

 

(889

)

Income tax benefit

1,567

 

 

194

 

Net loss

$

(9,277

)

 

$

(695

)

Earnings per share:

 

 

 

Basic net loss

$

(47.49

)

 

$

(3.49

)

Diluted net loss

$

(47.49

)

 

$

(3.49

)

 

 

 

 

 

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

 

Three Months Ended
March 31,

(in millions)

2020

 

2019

Net loss as reported

$

(9,277

)

 

$

(695

)

Participating basic earnings (a)

 

 

 

Basic loss attributable to common stockholders

(9,277

)

 

(695

)

Reallocation of participating earnings

 

 

 

Diluted loss attributable to common stockholders

$

(9,277

)

 

$

(695

)

 

 

 

 

(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
March 31,

(in thousands)

2020

 

2019

Weighted average common shares outstanding:

 

 

 

Basic

195,326

 

 

199,148

 

Dilutive performance units

 

 

 

Diluted

195,326

 

 

199,148

 

 

 

 

 

 

Concho Resources Inc.

Consolidated Statements of Cash Flows

Unaudited

 

 

Three Months Ended
March 31,

(in millions)

2020

 

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net loss

$

(9,277

)

 

$

(695

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

Depreciation, depletion and amortization

524

 

 

465

 

Accretion of discount on asset retirement obligations

2

 

 

3

 

Impairments of long-lived assets

7,772

 

 

 

Impairments of goodwill

1,917

 

 

 

Exploration and abandonments

2,713

 

 

38

 

Non-cash stock-based compensation expense

18

 

 

24

 

Deferred income taxes

(1,567

)

 

(194

)

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

5

 

 

(1

)

(Gain) loss on derivatives

(1,769

)

 

1,059

 

Net settlements received from derivatives

201

 

 

 

Other

205

 

 

2

 

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

 

 

 

Accounts receivable

122

 

 

(111

)

Prepaid costs and other

2

 

 

9

 

Inventory

5

 

 

 

Accounts payable

27

 

 

11

 

Revenue payable

(8

)

 

8

 

Other current liabilities

(56

)

 

5

 

Net cash provided by operating activities

836

 

 

623

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

Additions to oil and natural gas properties

(556

)

 

(918

)

Changes in working capital associated with oil and natural gas property additions

(1

)

 

33

 

Acquisitions of oil and natural gas properties

(20

)

 

(5

)

Additions to property, equipment and other assets

(19

)

 

(15

)

Proceeds from the disposition of assets

 

 

5

 

Direct transaction costs for asset acquisitions and dispositions

 

 

(2

)

Net cash used in investing activities

(596

)

 

(902

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Borrowings under credit facility

345

 

 

1,112

 

Payments on credit facility

(345

)

 

(739

)

Payment of common stock dividends

(39

)

 

(25

)

Purchases of treasury stock

(4

)

 

(13

)

Purchases of common stock under share repurchase program

(100

)

 

 

Decrease in book overdrafts

 

 

(54

)

Other

(2

)

 

(2

)

Net cash provided by (used in) financing activities

(145

)

 

279

 

Net increase in cash and cash equivalents

95

 

 

 

Cash and cash equivalents at beginning of period

70

 

 

 

Cash and cash equivalents at end of period

$

165

 

 

$

 

 

 

 

 

 

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
March 31,

 

2020

 

2019

Production and operating data:

 

 

 

Net production volumes:

 

 

 

Oil (MBbl)

19,020

 

 

18,936

 

Natural gas (MMcf)

63,652

 

 

63,769

 

Total (MBoe)

29,629

 

 

29,564

 

 

 

 

 

Average daily production volumes:

 

 

 

Oil (MBbl)

209

 

 

210

 

Natural gas (MMcf)

699

 

 

709

 

Total (MBoe)

326

 

 

328

 

 

 

 

 

Average prices per unit: (a)

 

 

 

Oil, without derivatives (Bbl)

$

45.85

 

 

$

49.39

 

Oil, with derivatives (Bbl) (b)

$

54.88

 

 

$

49.56

 

Natural gas, without derivatives (Mcf)

$

0.79

 

 

$

2.64

 

Natural gas, with derivatives (Mcf) (b)

$

1.25

 

 

$

2.59

 

Total, without derivatives (Boe)

$

31.13

 

 

$

37.33

 

Total, with derivatives (Boe) (b)

$

37.91

 

 

$

37.34

 

 

 

 

 

Operating costs and expenses per Boe: (a)

 

 

 

Oil and natural gas production

$

5.54

 

 

$

5.87

 

Production and ad valorem taxes

$

2.51

 

 

$

2.92

 

Gathering, processing and transportation

$

1.68

 

 

$

0.88

 

Depreciation, depletion and amortization

$

17.68

 

 

$

15.74

 

General and administrative

$

2.36

 

 

$

3.08

 

 

(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
March 31,

 

(in millions)

2020

 

2019

 

Net cash receipts from (payments on) derivatives:

 

 

 

 

Oil derivatives

$

172

 

 

$

3

 

 

Natural gas derivatives

29

 

 

(3

)

 

Total

$

201

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

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 first-quarter 2020:

Total Activity (Gross):

 

 

Number of Wells
Drilled

 

Number of Wells
Completed

 

Number of Wells
Put on Production

Delaware Basin

 

60

 

64

 

58

Midland Basin

 

29

 

35

 

32

Total

 

89

 

99

 

90

 

 

 

 

 

 

 

 

Total Activity (Gross Operated):

 

 

Number of Wells
Drilled

 

Number of Wells
Completed

 

Number of Wells
Put on Production

Delaware Basin

 

36

 

46

 

33

Midland Basin

 

29

 

35

 

30

Total

 

65

 

81

 

63

 

 

 

 

 

 

 

 

Total Activity (Net Operated):

 

 

Number of Wells
Drilled

 

Number of Wells
Completed

 

Number of Wells
Put on Production

Delaware Basin

 

27

 

40

 

27

Midland Basin

 

25

 

23

 

20

Total

 

52

 

63

 

47

 

 

 

 

 

 

 

 

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
March 31,

(in millions)

2020

 

2019

Property acquisition costs:

 

 

 

Proved

$

7

 

 

$

 

Unproved

5

 

 

4

 

Exploration

297

 

 

462

 

Development

270

 

 

464

 

Total costs incurred

$

579

 

 

$

930

 

 

 

 

 

 

Concho Resources Inc.

Derivatives Information

Unaudited

The table below provides data associated with the Company’s derivatives at April 30, 2020, for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

 

 

 

 

Second
Quarter

 

Third
Quarter

 

Fourth
Quarter

 

Total

 

2021

 

2022

Oil Price Swaps WTI: (a)

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MBbl)

 

14,559

 

 

12,634

 

 

10,781

 

 

37,974

 

 

30,657

 

 

730

 

Price per Bbl

 

$

53.27

 

 

$

54.10

 

 

$

55.53

 

 

$

54.19

 

 

$

47.42

 

 

$

38.68

 

Oil Price Swaps Brent: (b)

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MBbl)

 

2,031

 

 

2,415

 

 

2,477

 

 

6,923

 

 

 

 

 

Price per Bbl

 

$

60.33

 

 

$

52.33

 

 

$

49.11

 

 

$

53.52

 

 

$

 

 

$

 

Oil Basis Swaps: (c)

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MBbl)

 

14,498

 

 

12,688

 

 

11,192

 

 

38,378

 

 

30,657

 

 

 

Price per Bbl

 

$

(0.63

)

 

$

(0.60

)

 

$

(0.69

)

 

$

(0.64

)

 

$

0.50

 

 

$

 

Natural Gas Price Swaps Henry Hub: (d)

 

 

 

 

 

 

 

 

 

 

 

 

Volume (BBtu)

 

32,314

 

 

31,868

 

 

31,258

 

 

95,440

 

 

86,680

 

 

36,500

 

Price per MMBtu

 

$

2.46

 

 

$

2.47

 

 

$

2.48

 

 

$

2.47

 

 

$

2.49

 

 

$

2.38

 

Natural Gas Basis Swaps HH/EPP: (e)

 

 

 

 

 

 

 

 

 

 

 

 

Volume (BBtu)

 

23,960

 

 

23,300

 

 

23,610

 

 

70,870

 

 

62,050

 

 

36,500

 

Price per MMBtu

 

$

(1.07

)

 

$

(1.03

)

 

$

(1.02

)

 

$

(1.04

)

 

$

(0.75

)

 

$

(0.72

)

Natural Gas Basis Swaps HH/WAHA: (f)

 

 

 

 

 

 

 

 

 

 

 

 

Volume (BBtu)

 

7,280

 

 

7,970

 

 

8,280

 

 

23,530

 

 

18,250

 

 

7,300

 

Price per MMBtu

 

$

(1.10

)

 

$

(1.05

)

 

$

(1.03

)

 

$

(1.06

)

 

$

(0.92

)

 

$

(0.85

)

 

(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. These contracts are settled on a calendar-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 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 loss to adjusted net income, both in total and on a per diluted share basis, for the periods indicated:

 

Three Months Ended
March 31,

(in millions, except per share amounts)

2020

 

2019

Net loss - as reported

$

(9,277

)

 

$

(695

)

Adjustments for certain non-cash and special items:

 

 

 

(Gain) loss on derivatives

(1,769

)

 

1,059

 

Net cash received from derivatives

201

 

 

 

Impairments of long-lived assets

7,772

 

 

 

Impairments of goodwill

1,917

 

 

 

Unproved impairments and leasehold abandonments

2,713

 

 

30

 

(Gain) loss on disposition of assets and other

6

 

 

(1

)

Loss on equity method investments

196

 

 

 

Tax impact (a)

(2,052

)

 

(247

)

Changes in deferred taxes and other estimates

435

 

 

(2

)

Adjusted net income

$

142

 

 

$

144

 

Loss per diluted share - as reported

$

(47.49

)

 

$

(3.49

)

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

 

 

 

(Gain) loss on derivatives

(9.05

)

 

5.31

 

Net cash received from derivatives

1.03

 

 

 

Impairments of long-lived assets

39.77

 

 

 

Impairments of goodwill

9.81

 

 

 

Unproved impairments and leasehold abandonments

13.89

 

 

0.16

 

(Gain) loss on disposition of assets and other

0.03

 

 

(0.01

)

Loss on equity method investments

1.00

 

 

 

Tax impact

(10.50

)

 

(1.24

)

Changes in deferred taxes and other estimates

2.23

 

 

(0.01

)

Adjusted earnings per diluted share

$

0.72

 

 

$

0.72

 

Adjusted earnings per share:

 

 

 

Basic earnings

$

0.72

 

 

$

0.72

 

Diluted earnings

$

0.72

 

 

$

0.72

 

 

 

 

 

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

 

Reconciliation of Net 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 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) impairments of goodwill, (6) non-cash stock-based compensation, (7) (gain) loss on derivatives, (8) net cash received from derivatives, (9) (gain) loss on disposition of assets and other, (10) interest expense, (11) loss on equity method investments and (12) income tax 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 loss to adjusted EBITDAX for the periods indicated:

 

Three Months Ended
March 31,

(in millions)

2020

 

2019

Net loss

$

(9,277

)

 

$

(695

)

Exploration and abandonments

2,719

 

 

47

 

Depreciation, depletion and amortization

524

 

 

465

 

Accretion of discount on asset retirement obligations

2

 

 

3

 

Impairments of long-lived assets

7,772

 

 

 

Impairments of goodwill

1,917

 

 

 

Non-cash stock-based compensation

18

 

 

24

 

(Gain) loss on derivatives

(1,769

)

 

1,059

 

Net cash received from derivatives

201

 

 

 

(Gain) loss on disposition of assets and other

6

 

 

(1

)

Interest expense

42

 

 

47

 

Loss on equity method investments

196

 

 

 

Income tax benefit

(1,567

)

 

(194

)

Adjusted EBITDAX

$

784

 

 

$

755

 

 

 

 

 

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

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. Additionally, the Company provides free cash flow, which is a non-GAAP financial measure. Free cash flow is cash flow from operating activities before changes in working capital in excess of additions to oil and natural gas properties. The Company believes that free cash flow is useful to investors as it provides a measure to compare both cash flow from operating activities and additions to oil and natural gas properties across periods on a consistent basis.

The Company previously defined free cash flow as cash flow from operating activities before changes in working capital in excess of exploration and development costs incurred. Exploration and development costs incurred include those costs that are capitalized or charged to expense such as geological and geophysical costs and capitalized asset retirement costs. The Company’s new calculation better aligns with the way its industry peers compute free cash flow and can be derived directly from line items appearing on the Company’s statement of cash flows.

These non-GAAP measures should not be considered as alternatives to, or more meaningful than, net cash provided by operating activities as an indicator of operating performance.

The following tables provide a reconciliation from the GAAP measure of net cash provided by operating activities to OCF before working capital changes and to free cash flow:

 

Three Months Ended
March 31,

(in millions)

2020

 

2019

Net cash provided by operating activities

$

836

 

 

$

623

 

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

 

 

 

Accounts receivable

(122

)

 

111

 

Prepaid costs and other

(2

)

 

(9

)

Inventory

(5

)

 

 

Accounts payable

(27

)

 

(11

)

Revenue payable

8

 

 

(8

)

Other current liabilities

56

 

 

(5

)

Total working capital changes

(92

)

 

78

 

Operating cash flow before working capital changes

$

744

 

 

$

701

 

 

 

 

 

 

Three Months Ended
March 31,

(in millions)

2020

 

2019

Operating cash flow before working capital changes

$

744

 

 

$

701

 

Additions to oil and natural gas properties

(556

)

 

(918

)

Free cash flow

$

188

 

 

$

(217

)

 

 

 

 

 

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.