CXO Concho Resources Inc

Concho Resources Inc. (NYSE: CXO) (the “Company” or “Concho”) today reported financial and operating results for the second quarter of 2016.

Second-Quarter 2016 Highlights

• Delivered quarterly production of 13.2 million Boe, or 145.2 MBoepd, exceeding the high end of the Company’s guidance.
• Raised full-year 2016 production outlook to a range of 0% to 2% annual growth and maintained capital expenditure outlook.
• Reduced per-unit lease operating expense by 20% year-over-year and quarter-over-quarter and lowered full-year 2016 guidance for per-unit lease operating expense.
• Reported a net loss of $265.7 million, or $2.04 per diluted share. Net income totaled $33.9 million, or $0.26 per diluted share, on an adjusted basis (non-GAAP).
• Generated $413.6 million of EBITDAX (non-GAAP).

See “Supplemental Non-GAAP Financial Measures” at the end of this press release for a description of non-GAAP measures adjusted net income, adjusted earnings per share and EBITDAX and a reconciliation of these measures to the associated GAAP measure.

Tim Leach, Chairman, Chief Executive Officer and President, commented, “We continue to execute a disciplined strategy that is focused on improving capital productivity while extending our track record of solid operational performance. The second quarter exceeded expectations both operationally and financially. Production surpassed the high-end of our guidance range, and for the fourth straight quarter our capital spending was funded within cash flow. Our updated 2016 outlook for annual production growth and lower cash operating expenses reflects the quality of our assets and our efforts to pursue sustainable efficiencies that enhance full-cycle returns. The momentum we are generating combined with the scale of our core assets in the Permian Basin reinforces our 2017 outlook for double-digit production growth while continuing to balance capital and cash flow.”

Second-Quarter 2016 Operations Summary

Production for the second quarter of 2016 was 13.2 million barrels of oil equivalent (MMBoe), or an average of 145.2 thousand Boe per day (MBoepd), an increase of 4% from the first quarter of 2016 and above the high end of the Company’s guidance. Second-quarter 2016 production was comprised of 62% oil and 38% natural gas.

During the second quarter of 2016, Concho averaged 13 rigs, compared to 10 rigs in the first quarter of 2016. Concho started drilling or participating in a total of 55 gross wells (48 operated wells) and completed 55 gross wells during the second quarter of 2016. The table below summarizes the Company’s drilling activity by core area for the second quarter of 2016.

   

Number of WellsDrilled(Gross)

   

Number ofOperated WellsDrilled(Gross)

   

Number of WellsCompleted(Gross)

Delaware Basin 28 24 35 Midland Basin 16 13 10 New Mexico Shelf 11   11   10   Total 55   48   55     Percent Horizontal 98 % 100 % 96 %  

Delaware Basin

Production from horizontal wells in the Delaware Basin totaled 88.5 MBoepd in the second quarter of 2016, up 8% over the second quarter of 2015. During the second quarter of 2016, Concho drilled 28 gross wells in the Delaware Basin, including 12 wells in the Wolfcamp, nine wells in the Bone Spring Sands and seven wells in the Avalon Shale.

Concho added 24 new horizontal wells in the northern Delaware Basin with at least 30 days of production as of the end of the second quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 1,100 Boe per day (Boepd) (73% oil) and 1,470 Boepd, respectively. The average lateral length for these wells was 4,879 feet. The oil-rich Avalon Shale in Lea County, New Mexico, continues to be a key focus. The Company’s Avalon Shale program to date has delineated the multi-zone potential, with production data indicating that the upper and lower zones are distinct targets, which has positive implications for the development outlook of the play.

Concho added four new horizontal wells in the southern Delaware Basin with at least 30 days of production as of the end of the second quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 1,284 Boepd (77% oil) and 1,772 Boepd, respectively. The average lateral length for these wells was 5,360 feet. To date, the Company has focused on developing the Wolfcamp zone in the southern Delaware Basin. During the second quarter of 2016, the Company achieved strong results from a 3rd Bone Spring Sand delineation well in its North Harpoon area. The Company plans to complete additional 3rd Bone Spring Sand wells during the second half of 2016.

The Company currently has eight horizontal rigs in the Delaware Basin, with four horizontal rigs in the northern Delaware Basin and four horizontal rigs in the southern Delaware Basin.

Midland Basin

Concho added nine new horizontal wells in the Midland Basin with at least 30 days of production as of the end of the second quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 629 Boepd (85% oil) and 925 Boepd, respectively. The Company commenced drilling operations on these wells in 2015, and the average lateral length was 6,193 feet; however, the Company plans to drill substantially all wells to approximately 10,000 feet in lateral length during 2016. The average lateral length for the 13 gross operated wells drilled in the Midland Basin during the second quarter of 2016 was approximately 10,000 feet.

During the first half of 2016, the Company tested completion designs utilizing various sand concentrations. Well results disclosed during the first quarter of 2016 reflected larger stimulations with high sand concentrations, while the nine new horizontal wells added during the second quarter of 2016 utilized smaller completion designs. The experimentation in the first half of 2016 provides important data that facilitates the transition to development mode in the Midland Basin. The Company anticipates future wells will be completed with higher proppant concentrations to maximize recovery from multiple targets. Two wells in Upton County were recently turned to sales, both of which were completed with higher proppant concentrations, with an average peak 30-day and 24-hour rate of 1,070 Boepd (85% oil) and 1,420 Boepd, respectively. In addition, the Company is currently completing an eight-well test, with four wells targeting the Lower Spraberry and four wells targeting the Wolfcamp B.

The Company currently has six horizontal rigs in the Midland Basin.

New Mexico Shelf

In the New Mexico Shelf, Concho added four new horizontal wells with at least 30 days of production as of the end of the second quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 472 Boepd (82% oil) and 592 Boepd, respectively. The average lateral length for these wells was 4,655 feet. The wells added during the second quarter of 2016 mark the second-consecutive record for peak rates achieved in the play. Although the Company has moderated activity in the area, the Company continues to advance horizontal development in the New Mexico Shelf and has been able to maintain stable production from year-end 2015 levels.

The Company currently has two horizontal rigs in the New Mexico Shelf.

Second-Quarter 2016 Financial Summary

Concho’s average realized price for oil and natural gas for the second quarter of 2016, excluding the effect of commodity derivatives, was $30.00 per Boe, compared with $40.07 per Boe for the second quarter of 2015.

Net loss for the second quarter of 2016 was $265.7 million, or $2.04 per diluted share, compared to net loss of $120.5 million, or $1.02 per diluted share, for the second quarter of 2015. Adjusted net income (non-GAAP), which excludes non-cash and unusual items, for the second quarter of 2016 was $33.9 million, or $0.26 per diluted share, compared with adjusted net income (non-GAAP) of $45.5 million, or $0.38 per diluted share, for the second quarter of 2015.

EBITDAX (non-GAAP) for the second quarter of 2016 totaled $413.6 million, compared to $457.8 million for the second quarter of 2015.

Cash flows generated from operating activities for the six months ended June 30, 2016, totaled $249.8 million, compared with $488.9 million for the same period last year. Cash flows from operating activities and net settlements received from derivatives were $676.5 million for the six months ended June 30, 2016, as compared to $768.3 million for the same period last year.

See “Supplemental Non-GAAP Financial Measures” at the end of this press release for a description of non-GAAP measures adjusted net income, adjusted earnings per share and EBITDAX and a reconciliation of these measures to the associated GAAP measures.

Credit Facility and Liquidity Update

At June 30, 2016, Concho had cash of approximately $0.5 billion and long-term debt of $3.3 billion. Concho currently has no outstanding borrowings on its credit facility, providing the Company with total liquidity of approximately $3.0 billion.

Commodity Derivatives Update

The Company enters into commodity derivatives to manage its exposure to commodity price fluctuations. For the remainder of 2016, Concho has crude oil swap contracts covering approximately 57.1 MBopd at a weighted average price of $67.08 per Bbl. Please see the table under “Derivatives Information” below for detailed information about the Company’s current derivatives positions.

Outlook

For the third quarter of 2016, Concho expects production to average between 144 MBoepd and 148 MBoepd. In addition, Concho updated its full-year 2016 outlook for certain items. The following table summarizes the Company’s current guidance for those items, as compared to the Company’s prior guidance.

    Full Year 2016 Prior       Current Production growth 0% 0% - 2% Lease operating expense and workover costs (per Boe) $7.25 - $7.75 $6.50 - $7.00 Cash G&A (per Boe) $3.10 - $3.50 $3.00 - $3.30 Non-cash stock-based compensation (per Boe) $1.35 - $1.45 $1.10 - $1.30  

Conference Call

Concho will discuss second quarter 2016 results on a conference call tomorrow, August 3, 2016, at 8:30 AM CT (9:30 AM ET). The telephone number and passcode to access the conference call are provided below:

Dial-in: (855) 445-9894Intl. dial-in: (330) 863-3281Participant Passcode: 37937190

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.

Concho Resources Inc.

Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development, exploration and production of oil and natural gas properties. The Company’s operations are focused in the Permian Basin of southeast New Mexico and west Texas. For more information, visit the Company’s website at 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 and Section 21E of the Securities Exchange Act of 1934. 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. Forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Company’s future financial position, operations, performance, business strategy, oil and natural gas reserves, drilling program, capital expenditure budget, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, derivative activities and potential financing. The words “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “could,” “may,” “foresee,” “plan,” “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, anticipated future developments 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 discussed or referenced in the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q; risks relating to declines in the prices the Company receives, or sustained depressed prices the Company receives, for its oil and natural gas; uncertainties about the estimated quantities of oil and natural gas reserves; drilling and operating risks; the adequacy of the Company’s capital resources and liquidity including, but not limited to, access to additional borrowing capacity under its credit facility; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing and the export of oil and natural gas; the impact of potential changes in the Company’s credit ratings; environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater contamination; difficult and adverse conditions in the domestic and global capital and credit markets; risks related to the concentration of the Company’s operations in the Permian Basin of southeast New Mexico and west Texas; disruptions to, capacity constraints in or other limitations on the pipeline systems that deliver the Company’s oil, natural gas liquids and natural gas and other processing and transportation considerations; the costs and availability of equipment, resources, services and personnel required to perform the Company’s drilling and operating activities; potential financial losses or earnings reductions from the Company’s commodity price risk-management program; risks and liabilities associated with acquired properties or businesses; uncertainties about the Company’s ability to successfully execute its business and financial plans and strategies; uncertainties about the Company’s ability to replace reserves and economically develop its current reserves; general economic and business conditions, either internationally or domestically; competition in the oil and natural gas industry; uncertainty concerning the Company’s assumed or possible future results of operations; and other important factors that could cause actual results to differ materially from those projected.

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.

    Concho Resources Inc. Consolidated Balance Sheets Unaudited                   June 30,     December 31, (in thousands, except share and per share amounts)     2016     2015 Assets Current assets: Cash and cash equivalents $ 481,230 $ 228,550 Accounts receivable, net of allowance for doubtful accounts: Oil and natural gas 200,234 203,972 Joint operations and other 163,354 190,608 Derivative instruments 230,779 652,498 Prepaid costs and other   36,393     38,922   Total current assets   1,111,990     1,314,550   Property and equipment: Oil and natural gas properties, successful efforts method 16,490,330 15,846,307 Accumulated depletion and depreciation   (7,107,852 )   (5,047,810 ) Total oil and natural gas properties, net 9,382,478 10,798,497 Other property and equipment, net   183,966     178,450   Total property and equipment, net   9,566,444     10,976,947   Deferred loan costs, net 13,247 15,585 Intangible asset - operating rights, net 24,963 25,693 Inventory 16,293 19,118 Noncurrent derivative instruments - 167,038 Other assets   168,680     122,945   Total assets $ 10,901,617   $ 12,641,876   Liabilities and Stockholders’ Equity Current liabilities: Accounts payable - trade $ 20,172 $ 13,200 Revenue payable 109,204 169,787 Accrued and prepaid drilling costs 279,362 228,523 Derivative instruments 412 - Other current liabilities   166,440     184,910   Total current liabilities   575,590     596,420   Long-term debt 3,333,532 3,332,188 Deferred income taxes 890,324 1,630,373 Noncurrent derivative instruments 54,362 - Asset retirement obligations and other long-term liabilities 144,103 140,344 Stockholders’ equity: Common stock, $0.001 par value; 300,000,000 authorized; 132,240,074 and 129,444,042 shares issued at June 30, 2016 and December 31, 2015, respectively 132 129 Additional paid-in capital 4,887,420 4,628,390 Retained earnings 1,059,476 2,345,641 Treasury stock, at cost; 427,844 and 306,061 shares at June 30, 2016 and December 31, 2015, respectively   (43,322 )   (31,609 ) Total stockholders’ equity   5,903,706     6,942,551   Total liabilities and stockholders’ equity $ 10,901,617   $ 12,641,876       Concho Resources Inc. Consolidated Statements of Operations Unaudited               Three Months Ended       Six Months Ended June 30, June 30, (in thousands, except per share amounts)     2016     2015       2016     2015         Operating revenues: Oil sales $ 339,133 $ 470,890 $ 581,287 $ 820,474 Natural gas sales   57,166     66,535     98,576     130,473   Total operating revenues   396,299     537,425     679,863     950,947   Operating costs and expenses: Oil and natural gas production 110,224 142,265 225,181 267,800 Exploration and abandonments 21,274 12,020 44,134 17,775 Depreciation, depletion and amortization 280,966 304,802 591,048 572,007 Accretion of discount on asset retirement obligations 1,745 2,047 3,457 4,041 Impairments of long-lived assets - - 1,524,645 - General and administrative (including non-cash stock-based compensation of $12,451 and $15,450 for the three months ended June 30, 2016 and 2015, respectively, and $28,473 and $30,945 for the six months ended June 30, 2016 and 2015, respectively) 53,357 60,923 107,152 119,724 Loss on derivatives 296,694 147,399 216,852 32,059 (Gain) loss on disposition of assets, net   1,137     1,581     (109,929 )   1,620   Total operating costs and expenses   765,397     671,037     2,602,540     1,015,026   Loss from operations   (369,098 )   (133,612 )   (1,922,677 )   (64,079 ) Other income (expense): Interest expense (54,502 ) (53,482 ) (108,640 ) (107,051 ) Other, net   (334 )   (4,097 )   (6,869 )   (8,399 ) Total other expense   (54,836 )   (57,579 )   (115,509 )   (115,450 ) Loss before income taxes (423,934 ) (191,191 ) (2,038,186 ) (179,529 ) Income tax benefit   158,249     70,708     752,021     66,558   Net loss $ (265,685 ) $ (120,483 ) $ (1,286,165 ) $ (112,971 ) Earnings per share: Basic net loss $ (2.04 ) $ (1.02 ) $ (9.94 ) $ (0.97 ) Diluted net loss $ (2.04 ) $ (1.02 ) $ (9.94 ) $ (0.97 )     Concho Resources Inc. Consolidated Statements of Cash Flows Unaudited                         Six Months Ended June 30, (in thousands)     2016     2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,286,165 ) $ (112,971 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization 591,048 572,007 Accretion of discount on asset retirement obligations 3,457 4,041 Impairments of long-lived assets 1,524,645 - Exploration and abandonments, including dry holes 38,550 12,352 Non-cash stock-based compensation expense 28,473 30,945 Deferred income taxes (740,049 ) (95,268 ) (Gain) loss on disposition of assets, net (109,929 ) 1,620 Loss on derivatives 216,852 32,059 Other non-cash items 8,832 5,298 Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable 59,723 55,870 Prepaid costs and other (7,886 ) (2,098 ) Inventory 2,508 (1,935 ) Accounts payable 6,956 23,339 Revenue payable (58,980 ) (35,556 ) Other current liabilities   (28,210 )   (769 ) Net cash provided by operating activities   249,825     488,934   CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures on oil and natural gas properties (650,889 ) (1,492,547 ) Additions to property, equipment and other assets (15,795 ) (26,146 ) Proceeds from the disposition of assets 294,341 96 Contributions to equity method investments (39,500 ) (45,000 ) Net settlements received from derivatives   426,679     279,408   Net cash provided by (used in) investing activities   14,836     (1,284,189 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt - 1,097,400 Payments of debt - (1,030,900 ) Exercise of stock options 424 58 Excess tax benefit (deficiency) from stock-based compensation (692 ) 2,221 Net proceeds from issuance of common stock - 741,509 Purchase of treasury stock (11,713 ) (4,403 ) Decrease in bank overdrafts   -     (10,371 ) Net cash provided by (used in) financing activities   (11,981 )   795,514   Net increase in cash and cash equivalents 252,680 259 Cash and cash equivalents at beginning of period   228,550     21   Cash and cash equivalents at end of period $ 481,230   $ 280   NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for a business combination $ 230,828 $ -     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 Six Months Ended June 30, June 30,       2016     2015       2016     2015         Production and operating data: Net production volumes: Oil (MBbl) 8,137 9,031 16,237 17,097 Natural gas (MMcf) 30,434 26,283 57,991 49,268 Total (MBoe) 13,209 13,412 25,902 25,308   Average daily production volumes: Oil (Bbl) 89,418 99,242 89,214 94,459 Natural gas (Mcf) 334,440 288,824 318,632 272,199 Total (Boe) 145,158 147,379 142,319 139,826   Average prices per unit: Oil, without derivatives (Bbl) $ 41.68 $ 52.14 $ 35.80 $ 47.99 Oil, with derivatives (Bbl) (a) $ 61.46 $ 63.56 $ 61.18 $ 63.39 Natural gas, without derivatives (Mcf) $ 1.88 $ 2.53 $ 1.70 $ 2.65 Natural gas, with derivatives (Mcf) (a) $ 2.13 $ 2.88 $ 1.95 $ 2.97 Total, without derivatives (Boe) $ 30.00 $ 40.07 $ 26.25 $ 37.57 Total, with derivatives (Boe) (a) $ 42.78 $ 48.44 $ 42.72 $ 48.62   Operating costs and expenses per Boe: Lease operating expenses and workover costs $ 5.83 $ 7.30 $ 6.54 $ 7.46 Oil and natural gas taxes $ 2.51 $ 3.30 $ 2.15 $ 3.12 Depreciation, depletion and amortization $ 21.27 $ 22.72 $ 22.82 $ 22.60 General and administrative $ 4.04 $ 4.54 $ 4.14 $ 4.73     (a) Includes the effect of net cash receipts from derivatives:   Three Months Ended Six Months Ended June 30, June 30, (in thousands)     2016     2015       2016     2015   Net cash receipts from derivatives: Oil derivatives $ 160,968 $ 103,129 $ 412,095 $ 263,315 Natural gas derivatives   7,781   9,123   14,584   16,093 Total $ 168,749 $ 112,252 $ 426,679 $ 279,408     The presentation of average prices with derivatives is a result of including the net cash receipts from commodity derivatives that are presented in our statements of cash flows. This presentation of average prices with derivatives is a means by which to reflect the actual cash performance of our 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. Costs Incurred Unaudited                      

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

  Three Months Ended Six Months Ended June 30, June 30, (in thousands)     2016     2015       2016     2015   Property acquisition costs: Proved $ 3,757 $ 2,243 $ 256,109 $ 2,243 Unproved 18,767 18,037 157,407 34,050 Exploration 165,850 343,051 336,422 772,220 Development   107,039   221,410   190,143   523,154 Total costs incurred for oil and natural gas properties $ 295,413 $ 584,741 $ 940,081 $ 1,331,667     Concho Resources Inc. Derivatives Information Unaudited                          

The table below provides data associated with the Company’s derivatives at August 2, 2016, for the periods indicated:

  2016 Third

Quarter

Fourth

Quarter

Total 2017 2018   Oil Swaps: (a) Volume (Bbl) 5,460,000 5,054,000 10,514,000 19,110,000 9,240,000 Price per Bbl $ 74.21 $ 59.38 $ 67.08 $ 55.36 $ 48.81   Oil Basis Swaps: (b) Volume (Bbl) 5,520,000 5,060,000 10,580,000 17,561,000 - Price per Bbl $ (1.46 ) $ (1.48 ) $ (1.47 ) $ (0.82 ) $ -   Natural Gas Swaps: (c) Volume (MMBtu) 7,360,000 7,360,000 14,720,000 45,217,398 - Price per MMBtu $ 3.02 $ 3.02 $ 3.02 $ 3.02 $ -    

(a)

The index prices for the oil contracts are based on the New York Mercantile Exchange (“NYMEX”) – West Texas Intermediate (“WTI”) monthly average futures price.

(b)

The basis differential price is between Midland – WTI and Cushing – WTI.

(c)

The index prices for the natural gas price swaps are based on the NYMEX – Henry Hub last trading day futures price.     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 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 and diluted earnings per share determined under GAAP without regard to certain non-cash and unusual 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 or diluted earnings 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 (non-GAAP) for the periods indicated:

        Three Months Ended       Six Months Ended June 30, June 30, (in thousands, except per share amounts)     2016     2015       2016     2015         Net loss - as reported $ (265,685 ) $ (120,483 ) $ (1,286,165 ) $ (112,971 )   Adjustments for certain non-cash and unusual items: Loss on derivatives 296,694 147,399 216,852 32,059 Net cash receipts from derivatives 168,749 112,252 426,679 279,408 Impairments of long-lived assets - - 1,524,645 - Leasehold abandonments 11,197 1,444 31,849 3,363 (Gain) loss on disposition of assets and other 483 1,581 (109,018 ) 1,620 Tax impact (177,490 ) (94,826 ) (777,855 ) (114,238 ) Change in statutory effective income tax rates   -     (1,826 )   -     (1,826 ) Adjusted net income $ 33,948   $ 45,541   $ 26,987   $ 87,415     Adjusted earnings per share: Basic net income $ 0.26 $ 0.38 $ 0.21 $ 0.74 Diluted net income $ 0.26 $ 0.38 $ 0.21 $ 0.74    

Reconciliation of Net Loss to EBITDAX

EBITDAX (as defined below) is presented herein and reconciled from the GAAP measure of net loss because of its wide acceptance by the investment community as a financial indicator of a company’s ability to internally fund exploration and development activities.

The Company defines EBITDAX as net loss, plus (1) exploration and abandonments expense, (2) depreciation, depletion and amortization expense, (3) accretion expense, (4) impairments of long-lived assets, (5) non-cash stock-based compensation expense, (6) loss on derivatives, (7) net cash receipts from derivatives, (8) (gain) loss on disposition of assets, net, (9) interest expense and (10) federal and state income taxes. EBITDAX is not a measure of net loss or cash flows as determined by GAAP.

The Company’s EBITDAX measure provides additional information which may be used to better understand the Company’s operations. 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 loss as an indicator of operating performance. Certain items excluded from 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 assets, none of which are components of EBITDAX. EBITDAX, as used by the Company, may not be comparable to similarly titled measures reported by other companies. The Company believes that 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, 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 EBITDAX (non-GAAP) for the periods indicated:

        Three Months Ended       Six Months Ended June 30, June 30, (in thousands)     2016     2015       2016     2015         Net loss $ (265,685 ) $ (120,483 ) $ (1,286,165 ) $ (112,971 ) Exploration and abandonments 21,274 12,020 44,134 17,775 Depreciation, depletion and amortization 280,966 304,802 591,048 572,007 Accretion of discount on asset retirement obligations 1,745 2,047 3,457 4,041 Impairments of long-lived assets - - 1,524,645 - Non-cash stock-based compensation 12,451 15,450 28,473 30,945 Loss on derivatives 296,694 147,399 216,852 32,059 Net cash receipts from derivatives 168,749 112,252 426,679 279,408 (Gain) loss on disposition of assets, net 1,137 1,581 (109,929 ) 1,620 Interest expense 54,502 53,482 108,640 107,051 Income tax benefit   (158,249 )   (70,708 )   (752,021 )   (66,558 ) EBITDAX $ 413,584   $ 457,842   $ 795,813   $ 865,377  

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Concho Resources Inc.Megan P. Hays, 432-685-2533Director of Investor RelationsorMary Tennant, 432-221-0477Senior Financial Analyst