Concho Resources Inc. (NYSE: CXO) (the “Company” or
“Concho”) today reported financial and operating results for the
second quarter of 2017.
Second-Quarter 2017 Highlights
- Increased production 27% year-over-year
to 184.7 MBoepd.
- Delivered 8th consecutive quarter in
which cash flows from operations exceeded capital
expenditures.
- Continued delineation of the stacked
oil resource in the Northern Delaware Basin.
- Achieved record well performance in the
Southern Delaware Basin.
- Acquired 12,400 net acres, enhancing
the Company’s Midland Basin assets in Andrews and Martin counties,
Texas.
- Raised annual production growth outlook
to a midpoint of 25% and expect oil production to increase by more
than 25%.
- Full-year 2017 capital expenditures,
excluding acquisitions, tracking the midpoint of the guidance range
of $1.6 billion to $1.8 billion.
- Reported quarterly net income of $152
million, or $1.02 per diluted share. Adjusted net income totaled
$77 million, or $0.52 per diluted share (non-GAAP).
- Generated $461 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 and Chief Executive Officer, commented,
“Strong companies that are able to navigate and capitalize on
commodity price volatility will win in this environment. Our
ability to deliver excellent performance while balancing capital
investment and cash flow over the last two years demonstrates our
execution strength and high-quality assets. This quarter’s solid
operating results are supported by the capital efficiency of our
program, which we see improving further as we move to large-scale
development. Going forward, we will continue to focus on executing
a disciplined capital program funded within cash flow. I am
confident that this discipline will continue to distinguish Concho
as an industry leader.”
Second-Quarter 2017 Operations Summary
Production for the second quarter of 2017 averaged 184.7
thousand Boe per day (MBoepd), an increase of approximately 27%
from the second quarter of 2016. Crude oil production for the
second quarter of 2017 totaled 113.2 thousand barrels per day
(MBopd), an increase of approximately 27% from the second quarter
of 2016. Average daily natural gas production for the second
quarter of 2017 totaled 428.8 million cubic feet (MMcf).
Concho averaged 21 rigs in the second quarter of 2017. The
Company is currently running 19 rigs and expects to average 17 rigs
in the second half of 2017. During the second quarter of 2017,
Concho commenced drilling or participated in a total of 87 gross
wells (60 operated wells) and completed 76 gross wells. The table
below summarizes the Company’s drilling activity by core area for
the second quarter of 2017.
Number of WellsDrilled
(Gross)
Number ofOperated
WellsDrilled (Gross)
Number of
WellsCompleted(Gross)
Northern Delaware Basin 37 21 26 Southern Delaware Basin 23 16 15
Midland Basin 12 12 21 New Mexico Shelf 15 11 14 Total 87 60 76
Northern Delaware Basin
Concho added 12 horizontal wells in the Northern Delaware Basin
with at least 30 days of production during the second quarter of
2017 and an average lateral length of 6,045 feet. The average peak
30-day and 24-hour rates for these wells were 1,394 Boepd (66% oil)
and 1,700 Boepd, respectively. The Company currently has seven rigs
drilling in the Northern Delaware Basin.
Delineating the Stacked Oil Resource in Red Hills and Deep
Areas
In the Red Hills area, Concho recently completed the Viking
Helmet 1H well. This well targeted the Wolfcamp Sands, an
over-pressured zone that sits above the Wolfcamp Shale at a depth
of approximately 12,000 feet. While early in production, the
Company is encouraged by the performance of this well, which
achieved an average peak 20-day rate of 3,050 Boepd (85% oil) and a
24-hour rate of 3,444 Boepd from a lateral length of 6,838
feet.
The Company continued to advance its delineation efforts of the
multi-zone resource in the Deep area. In the second quarter of
2017, Concho added the Blue Jay Federal 2H, a 3rd Bone Spring well
with a peak 30-day rate of 2,233 Boepd (83% oil) from a 4,279 feet
lateral. In addition, the Company added the Mas Federal 4H well,
which achieved a peak 30-day rate of 1,470 Boepd (80% oil) from a
lateral length of 4,392 feet. This well is the Company’s first test
of the Wolfcamp Sands in the Deep area.
Southern Delaware Basin
Concho added eight horizontal wells in the Southern Delaware
Basin with at least 30 days of production during the second quarter
of 2017. The average peak 30-day and 24-hour rates for these wells
were 1,740 Boepd (77% oil) and 2,165 Boepd, respectively. This
performance and the average lateral length of 8,852 feet represent
Company records for the Southern Delaware Basin. The Company
currently has six rigs drilling in the Southern Delaware Basin.
Optimizing Development of the 3rd Bone Spring and Upper
Wolfcamp
Concho is testing the co-development of the 3rd Bone Spring and
Upper Wolfcamp in the Southern Delaware Basin. Included in results
for the second quarter of 2017 were three 3rd Bone Spring wells,
which achieved an average peak 30-day rate of 2,068 Boepd (73% oil)
from an average lateral length of 9,967 feet. These wells were
co-developed with the Upper Wolfcamp. Simultaneous development of
the zones will optimize recoveries and enhance overall value of the
Company’s Southern Delaware Basin position.
Midland Basin
Concho added 31 horizontal wells in the Midland Basin with at
least 30 days of production during the second quarter of 2017 and
an average lateral length of 9,995 feet. The average peak 30-day
and 24-hour rates for these wells were 923 Boepd (87% oil) and
1,078 Boepd, respectively. The Company currently has five rigs
drilling in the Midland Basin.
Outstanding Performance in the Lower Spraberry
Concho continued to achieve outstanding performance from the
Lower Spraberry zone in the Midland Basin. During the second
quarter of 2017, seven new wells were brought online with an
average peak 30-day and 24-hour rates of 1,032 Boepd (87% oil) and
1,233 Boepd, respectively from an average lateral length of 10,289
feet.
Strategic Midland Basin Acquisition
On July 31, 2017, Concho acquired approximately 12,400 net acres
with an average 100% working interest in Andrews and Martin
counties, Texas. The acquired properties include approximately 3
MBoepd (73% oil) of legacy production. The acreage is contiguous
with the Mabee Ranch leasehold Concho acquired from Reliance in the
fourth quarter of 2016, enhancing the assets for large-scale,
long-lateral development. The purchase price was $600 million, and
the transaction was funded with cash on hand.
Regarding the recent acquisition, Mr. Leach commented, “This
strategic acquisition complements the Midland Basin acreage we
acquired last year and is consistent with our focus on high-grading
our portfolio through trades, acquisitions and divestitures. We
believe one of the best ways to create value is by owning large,
contiguous positions with high ownership in the Permian.”
New Mexico Shelf
In the New Mexico Shelf, Concho added 13 horizontal wells with
at least 30 days of production during the second quarter of 2017.
The average peak 30-day and 24-hour rates for these wells were 396
Boepd (84% oil) and 553 Boepd, respectively. The average lateral
length for these wells was 5,061 feet, which sets a Company record.
The Company currently has one rig drilling in the New Mexico
Shelf.
Second-Quarter 2017 Financial Summary
Concho’s average realized price for crude oil and natural gas
for the second quarter of 2017, excluding the effect of commodity
derivatives, was $44.75 per Bbl and $2.71 per Mcf, respectively,
compared with $41.68 per Bbl and $1.88 per Mcf, respectively, for
the second quarter of 2016.
Net income for the second quarter of 2017 was $152 million, or
$1.02 per diluted share, compared to net loss of $266 million, or
$2.04 per diluted share, for the second quarter of 2016. Adjusted
net income (non-GAAP), which excludes non-cash and unusual items,
for the second quarter of 2017 was $77 million, or $0.52 per
diluted share, compared with adjusted net income (non-GAAP) of $34
million, or $0.26 per diluted share, for the second quarter of
2016.
EBITDAX (non-GAAP) for the second quarter of 2017 totaled $461
million, compared to $413 million for the second quarter of
2016.
Financial Position and Liquidity
At June 30, 2017, Concho had cash of $662 million and long-term
debt of $2.7 billion. Concho currently has no outstanding
borrowings under its credit facility. Adjusted for the Midland
Basin acquisition, the Company had cash of $122 million and
long-term debt of $2.7 billion at June 30, 2017.
Outlook
For the third quarter of 2017, Concho expects production to
average between 186 MBoepd and 190 MBoepd.
For full-year 2017, Concho raised its production growth guidance
to a range of 24% to 26% and expects oil production to grow by more
than 25%. The Company expects capital expenditures, excluding
acquisitions, will approximate the midpoint of the guidance range
of $1.6 billion to $1.8 billion. Additionally, for the second half
of 2017, the Company expects oil and natural gas production expense
will be at the high end of the guidance range of $5.50 per Boe to
$6.00 per Boe, with production expense tracking the midpoint of the
range for full-year 2017. The Company lowered full-year 2017
guidance for depletion, depreciation and amortization expense to a
range of $16 per Boe to $18 per Boe, as compared to previous
guidance of $17 per Boe to $19 per Boe.
Commodity Derivatives Update
The Company enters into commodity derivatives to manage its
exposure to commodity price fluctuations. For the second half of
2017, Concho has crude oil price swap contracts covering
approximately 96.5 MBopd at a weighted average price of $51.18 per
Bbl. The Company also has crude oil price swaps for 2018 and 2019,
covering approximately 74.7 MBopd and 48.9 MBopd at a weighted
average price of $51.35 per Bbl and $52.70 per Bbl, respectively.
Please see the table under “Derivatives Information” below for
detailed information about the Company’s current derivatives
positions.
Conference Call
Concho will discuss second quarter 2017 results on a conference
call tomorrow, August 3, 2017, at 8:00 AM CT (9:00 AM ET). The
telephone number and passcode to access the conference call are
provided below:
Dial-in: (844) 263-8298Intl. dial-in: (478) 219-0007Participant
Passcode: 31529221
To access the live webcast and view the related earnings
presentation, visit the Company’s website at www.concho.com.
The replay will also be available on Concho’s website under the
“Investors” section.
Upcoming Conferences
The Company will participate in the following upcoming
conferences:
Conference Date Conference
September 5, 2017 Barclays CEO Energy Conference September 12, 2017
Raymond James North America Equities Conference September 19, 2017
J.P. Morgan All Stars Conference September 28, 2017 Wolfe Research
Oil & Gas Leaders Conference
The presentations will be available on the Company’s website on
or prior to the day of the first conference under the Investors
section of the Company’s website, www.concho.com.
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 risks include, without
limitation, the risk factors discussed or referenced in the
Company’s most recent Annual Report on Form 10-K and in the
Company’s Quarterly Report on Form 10-Q; risks relating to declines
in, or the sustained depression of, the prices the Company receives
for its oil and natural gas; uncertainties about the estimated
quantities of oil and natural gas reserves; drilling, completion
and operating risks; 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; 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 qualified personnel required to
perform the Company’s drilling, completion 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; the adequacy of
the Company’s capital resources and liquidity including, but not
limited to, access to additional borrowing capacity under the
Company’s credit facility; the impact of potential changes in the
Company’s credit ratings; cybersecurity risks, such as those
involving unauthorized access, malicious software, data privacy
breaches by employees or others with authorized access, cyber or
phishing-attacks, ransomware and other security issues;
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 millions, except share and per share
amounts) 2017
2016 Assets Current assets: Cash and cash equivalents
$ 662 $ 53 Accounts receivable, net of allowance for doubtful
accounts: Oil and natural gas 227 220 Joint operations and other
241 238 Derivative instruments 135 4 Prepaid costs and other
39 31
Total current assets
1,304 546 Property and equipment: Oil
and natural gas properties, successful efforts method 19,710 18,476
Accumulated depletion and depreciation (7,904 )
(7,390 ) Total oil and natural gas properties, net 11,806 11,086
Other property and equipment, net 234 216
Total property and equipment, net 12,040
11,302 Funds held in escrow 60 43 Deferred loan
costs, net 15 11 Intangible asset - operating rights, net 24 24
Inventory 14 16 Noncurrent derivative instruments 90 - Other assets
44 177 Total assets $ 13,591 $
12,119
Liabilities and Stockholders’ Equity Current
liabilities: Accounts payable - trade $ 26 $ 28 Revenue payable 129
132 Accrued drilling costs 446 359 Derivative instruments - 82
Other current liabilities 165 152 Total
current liabilities 766 753 Long-term
debt 2,741 2,741 Deferred income taxes 1,212 766 Noncurrent
derivative instruments - 96 Asset retirement obligations and other
long-term liabilities 143 140 Stockholders’ equity: Common stock,
$0.001 par value; 300,000,000 authorized; 149,314,618 and
146,488,685 shares issued at June 30, 2017 and December 31, 2016,
respectively - - Additional paid-in capital 7,108 6,783 Retained
earnings 1,686 884 Treasury stock, at cost; 591,650 and 429,708
shares at June 30, 2017 and December 31, 2016, respectively
(65 ) (44 ) Total stockholders’ equity 8,729
7,623 Total liabilities and stockholders’ equity $
13,591 $ 12,119
Concho Resources
Inc. Consolidated Statements of Operations
Unaudited
Three
Months Ended Six Months Ended June 30, June
30, (in millions, except per share amounts)
2017 2016
2017 2016 Operating
revenues: Oil sales $ 461 $ 339 $ 963 $ 581 Natural gas sales
106 57 216 99
Total operating revenues 567 396
1,179 680
Operating costs and
expenses: Oil and natural gas production 100 77 187 169
Production and ad valorem taxes 44 33 92 56 Exploration and
abandonments 20 21 35 44 Depreciation, depletion and amortization
281 281 564 591 Accretion of discount on asset retirement
obligations 2 1 4 3 Impairments of long-lived assets - - - 1,525
General and administrative (including non-cash stock-based
compensation of $14 and $12 for the three months ended June 30,
2017 and 2016, respectively, and $26 and $28 for the six months
ended June 30, 2017 and 2016, respectively) 60 53 116 107 (Gain)
loss on derivatives (209 ) 298 (495 ) 217 (Gain) loss on
disposition of assets, net - 1
(654 ) (110 ) Total operating costs and expenses 298
765 (151 ) 2,602
Income (loss) from operations 269 (369
) 1,330 (1,922 )
Other income
(expense): Interest expense (39 ) (55 ) (79 ) (109 ) Loss on
extinguishment of debt (1 ) - (1 ) - Other, net 16
- 16 (7 ) Total other expense
(24 ) (55 ) (64 ) (116 )
Income
(loss) before income taxes 245 (424 ) 1,266 (2,038 ) Income tax
(expense) benefit (93 ) 158 (464 )
752
Net income (loss) $ 152 $ (266 ) $
802 $ (1,286 )
Earnings per share: Basic net income
(loss) $ 1.02 $ (2.04 ) $ 5.41 $ (9.94 ) Diluted net income (loss)
$ 1.02 $ (2.04 ) $ 5.39 $ (9.94 )
Concho Resources
Inc. Consolidated Statements of Cash Flows
Unaudited
Six Months Ended June
30, (in millions) 2017
2016 CASH FLOWS FROM OPERATING
ACTIVITIES: Net income (loss) $ 802 $ (1,286 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: Depreciation, depletion and amortization 564
591 Accretion of discount on asset retirement obligations 4 3
Impairments of long-lived assets - 1,525 Exploration and
abandonments, including dry holes 24 39 Non-cash stock-based
compensation expense 26 28 Deferred income taxes 454 (740 ) Gain on
disposition of assets, net (654 ) (110 ) (Gain) loss on derivatives
(495 ) 217 Net settlements received from derivatives 96 427 Loss on
extinguishment of debt 1 - Other non-cash items 1 8 Changes in
operating assets and liabilities, net of acquisitions and
dispositions: Accounts receivable (24 ) 60 Prepaid costs and other
(3 ) (9 ) Inventory 1 3 Accounts payable (2 ) 7 Revenue payable (2
) (59 ) Other current liabilities 12 (28 ) Net
cash provided by operating activities 805 676
CASH FLOWS FROM INVESTING ACTIVITIES: Capital
expenditures on oil and natural gas properties (863 ) (651 )
Additions to property, equipment and other assets (30 ) (16 )
Proceeds from the disposition of assets 803 294 Direct transaction
costs for disposition of assets (18 ) - Funds held in escrow (60 )
- Contributions to equity method investments -
(39 ) Net cash used in investing activities (168 )
(412 )
CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from
issuance of debt 105 - Payments of debt (105 ) - Excess tax
deficiency from stock-based compensation - (1 ) Payments for loan
costs (7 ) - Purchase of treasury stock (21 ) (11 )
Net cash used in financing activities (28 ) (12 ) Net
increase in cash and cash equivalents 609 252 Cash and cash
equivalents at beginning of period 53 229
Cash and cash equivalents at end of period $ 662 $
481
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for business combinations $ 291 $ 231
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,
2017 2016
2017 2016
Production and operating data: Average daily production
volumes: Oil (Bbl) 113,220 89,418 113,409 89,214 Natural gas
(Mcf) 428,769 334,440 417,762 318,632 Total (Boe) 184,682 145,158
183,036 142,319
Average prices per unit: Oil, without
derivatives (Bbl) $ 44.75 $ 41.68 $ 46.91 $ 35.80 Oil, with
derivatives (Bbl) (a) $ 51.60 $ 61.46 $ 51.86 $ 61.18 Natural gas,
without derivatives (Mcf) $ 2.71 $ 1.88 $ 2.85 $ 1.70 Natural gas,
with derivatives (Mcf) (a) $ 2.67 $ 2.13 $ 2.78 $ 1.95 Total,
without derivatives (Boe) $ 33.73 $ 30.00 $ 35.57 $ 26.25 Total,
with derivatives (Boe) (a) $ 37.84 $ 42.78 $ 38.48 $ 42.72
Operating costs and expenses per Boe: Oil and natural gas
production $ 5.91 $ 5.83 $ 5.64 $ 6.54 Production and ad valorem
taxes $ 2.62 $ 2.51 $ 2.77 $ 2.15 Depreciation, depletion and
amortization $ 16.69 $ 21.27 $ 17.02 $ 22.82 General and
administrative $ 3.70 $ 4.04 $ 3.54 $ 4.14
(a) Includes the effect of net cash receipts from (payments
on) derivatives:
Three Months Ended Six Months Ended June 30,
June 30, (in millions)
2017 2016 2017
2016 Net cash receipts from
(payments on) derivatives: Oil derivatives $ 70 $ 160 $ 101 $
412 Natural gas derivatives (2 ) 8 (5 )
15 Total $ 68 $ 168 $ 96 $ 427
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 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
millions) 2017
2016 2017 2016
Property acquisition costs: Proved $ 12 $ 4 $ 139 $ 256
Unproved 87 19 393 158 Exploration 238 165 473 336 Development
145 107 303 190 Total costs incurred
for oil and natural gas properties $ 482 $ 295 $ 1,308 $ 940
Concho Resources Inc. Derivatives
Information Unaudited
The table below provides data associated
with the Company’s derivatives at August 2, 2017, for the periods
indicated:
2017 Third
Quarter
Fourth
Quarter
Total 2018 2019 Oil Price Swaps:
(a) Volume (Bbl) 9,219,370 8,542,080 17,761,450 27,277,124
17,832,000 Price per Bbl $ 51.15 $ 51.21 $ 51.18 $ 51.35 $ 52.70
Oil Basis Swaps: (b) Volume (Bbl) 7,217,000 7,682,000
14,899,000 26,550,000 17,410,000 Price per Bbl $ (0.66 ) $ (0.70 )
$ (0.68 ) $ (1.05 ) $ (1.17 )
Natural Gas Price Swaps:
(c) Volume (MMBtu) 15,895,441 14,673,000 30,568,441 41,920,000
10,540,992 Price per MMBtu $ 3.12 $ 3.10 $ 3.11 $ 3.05 $ 2.85
(a) The index prices for the oil price swaps 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 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 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 income (loss) to adjusted net income (non-GAAP),
both in total and on a per diluted share basis, for the periods
indicated:
Three Months Ended Six Months
Ended June 30, June 30, (in millions, except
per share amounts) 2017
2016 2017
2016 Net income (loss) - as
reported $ 152 $ (266 ) $ 802 $ (1,286 )
Adjustments
for certain non-cash and unusual items: (Gain) loss on
derivatives (209 ) 298 (495 ) 217 Net cash receipts from
derivatives 68 168 96 427 Impairments of long-lived assets - - -
1,525 Leasehold abandonments 18 11 24 32 Loss on extinguishment of
debt 1 - 1 - Gain on disposition of assets and other - - (654 )
(109 ) Tax impact 45 (177 ) 378 (778 ) Excess tax deficiency
(benefit) 2 - (6 ) -
Adjusted net income $ 77 $ 34 $ 146
$ 28
Net income (loss) per diluted share -
as reported $ 1.02 $ (2.04 ) $ 5.39 $ (9.94 )
Adjustments for certain non-cash and unusual items per diluted
share: (Gain) loss on derivatives (1.40 ) 2.28 (3.33 ) 1.67 Net
cash receipts from derivatives 0.46 1.29 0.65 3.30 Impairments of
long-lived assets - - - 11.78 Leasehold abandonments 0.12 0.09 0.16
0.25 Loss on extinguishment of debt 0.01 - 0.01 - Gain on
disposition of assets and other - - (4.40 ) (0.84 ) Tax impact 0.30
(1.36 ) 2.54 (6.01 ) Excess tax deficiency (benefit) 0.01
- (0.04 ) -
Adjusted
net income per diluted share $ 0.52 $ 0.26 $ 0.98
$ 0.21
Adjusted earnings per share:
Basic net income $ 0.52 $ 0.26 $ 0.99 $ 0.21 Diluted net income $
0.52 $ 0.26 $ 0.98 $ 0.21
Reconciliation of Net Income (Loss) to EBITDAX
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 of
a company’s ability to internally fund exploration and development
activities.
The Company defines EBITDAX as net income (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) (gain) loss on derivatives, (7) net cash receipts from
derivatives, (8) (gain) loss on disposition of assets, net, (9)
interest expense, (10) loss on extinguishment of debt and (11)
federal and state income tax expense (benefit). EBITDAX is not a
measure of net income (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,
and it is also a material component of one of the financial
covenants under the Company’s credit facility. 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 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. 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,
including by lenders pursuant to a covenant in the Company’s credit
facility. 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. Further, under the
Company’s credit facility, an event of default could arise if it
were not able to satisfy and remain in compliance with its
specified financial ratio, defined as the maintenance of a
quarterly ratio of total debt to consolidated last twelve months
EBITDAX of no greater than 4.25 to 1.0. Non-compliance with this
ratio could trigger an event of default under the Company’s credit
facility, which then could trigger an event of default under its
indentures. At June 30, 2017, the Company was in compliance with
the covenants under all of its debt instruments.
The following table provides a reconciliation of the GAAP
measure of net income (loss) to EBITDAX (non-GAAP) for the periods
indicated:
Three Months Ended Six Months Ended June
30, June 30, (in millions)
2017 2016 2017
2016 Net income (loss) $ 152 $
(266 ) $ 802 $ (1,286 ) Exploration and abandonments 20 21 35 44
Depreciation, depletion and amortization 281 281 564 591 Accretion
of discount on asset retirement obligations 2 1 4 3 Impairments of
long-lived assets - - - 1,525 Non-cash stock-based compensation 14
12 26 28 (Gain) loss on derivatives (209 ) 298 (495 ) 217 Net cash
receipts from derivatives 68 168 96 427 (Gain) loss on disposition
of assets, net - 1 (654 ) (110 ) Interest expense 39 55 79 109 Loss
on extinguishment of debt 1 - 1 - Income tax expense (benefit)
93 (158 ) 464 (752 )
EBITDAX $ 461 $ 413 $ 922 $ 796
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version on businesswire.com: http://www.businesswire.com/news/home/20170802006414/en/
Concho Resources Inc.Investor RelationsMegan P.
Hays, 432-685-2533Vice President of Investor Relations and
Public AffairsorMary T. Starnes, 432-221-0477Senior
Financial Analyst
Concho Resources (NYSE:CXO)
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