Exceeds Crude Oil and Total Production
Growth Guidance
Increases Total Resource Potential to an
Estimated 10 Billion Barrels of Oil Equivalent
Provides New Long-Term Growth Outlook to
2020
Accelerates Value with Recent Portfolio
Management Activities
Concho Resources Inc. (NYSE: CXO) (the “Company” or
“Concho”) today reported financial and operating results for
fourth-quarter and full-year 2017.
Fourth-Quarter & Full-Year 2017 Highlights
- For fourth quarter, delivered crude oil
production of 130 MBopd and total production of 211 MBoepd,
exceeding the high end of the Company’s guidance range.
- For 2017, grew crude oil production 29%
and total production 28% on a $1.7 billion capital program,
excluding acquisitions, which was fully funded by cash flows from
operations.
- Reported fourth quarter net income of
$267 million, or $1.79 per diluted share. Adjusted net income
totaled $98 million, or $0.66 per diluted share (non-GAAP). For
2017, net income totaled $956 million, or $6.41 per diluted share,
and adjusted net income was $311 million, or $2.09 per diluted
share (non-GAAP).
- Generated $513 million of EBITDAX
(non-GAAP) in the fourth quarter and $1.9 billion for 2017.
- Delivered outstanding results from the
Company’s large-scale development projects in the Northern and
Southern Delaware Basin and in the Midland Basin.
- Increased estimated proved reserves 17%
to 840 MMBoe, driven by a 26% increase in proved developed reserves
to 588 MMBoe.
- Achieved a 275% reserves replacement
ratio at $8.68 per Boe proved developed finding costs.
2018 Outlook & Recent Events
- For 2018, expecting crude oil
production growth of approximately 20% and total production growth
of 16% to 20% on a $2 billion capital program at the midpoint. The
capital program is consistent with Concho’s strategy of delivering
returns-based, capital-efficient growth within cash flows from
operations.
- Provided new three-year production
growth outlook of 20% CAGR over the 2017 to 2020 time period.
- Enhanced asset position and accelerated
value realization with recent portfolio management actions.
Divestiture proceeds of $280 million reinforce balance sheet
strength and flexibility. Strategic asset trade enhances core
leasehold in Midland Basin and New Mexico Shelf.
See “Supplemental Non-GAAP Financial Measures” and “Supplemental
Measures” at the end of this press release for a description of
non-GAAP measures adjusted net income, adjusted earnings per share
and EBITDAX as well as a reconciliation of these measures to the
associated GAAP measure. An explanation of how we calculate and use
the reserves replacement ratio and proved developed finding costs
also can be found at the end of the press release.
Tim Leach, Chairman and Chief Executive Officer, commented, “The
fourth quarter was an excellent end to a great year for Concho. Our
operational and financial performance demonstrated our ability to
consistently execute, control costs and capitalize on opportunities
that strengthen our competitive position. For the year, crude oil
production exceeded our target, increasing 29% year-over-year, and
our disciplined capital program was fully funded by operating cash
flow. We have a powerful portfolio that continues to outperform.
The depth and quality of our resource base is unmatched throughout
our history and allows us to assemble multi-year programs capable
of delivering premium value within cash flow. We continue to
complement our development program with active portfolio management
that accelerates value and improves capital efficiency. Our
high-quality resource base, scale advantage and execution strength
uniquely position Concho to navigate a dynamic operating
environment while maximizing returns and building sustainable value
for our shareholders.”
Fourth-Quarter and Full-Year 2017 Operations Summary
Production for fourth-quarter 2017 was 19 million barrels of oil
equivalent (MMBoe), or an average of 211 thousand Boe per day
(MBoepd), an increase of approximately 28% from fourth-quarter 2016
and 9% from third-quarter 2017. Average daily crude oil production
for fourth-quarter 2017 totaled 130 thousand barrels per day
(MBopd), an increase of approximately 30% from fourth-quarter 2016
and 9% from third-quarter 2017. Natural gas production for
fourth-quarter 2017 totaled 487 million cubic feet per day
(MMcfpd).
For full-year 2017, total production increased 28% to 70 MMBoe,
or 193 MBoepd, driven by a 29% increase in crude oil production to
119 MBopd. Natural gas production for full-year 2017 was 441
MMcfpd.
During fourth-quarter 2017, Concho averaged 16 rigs, compared to
19 rigs in third-quarter 2017. The table below summarizes the
Company’s gross drilling and completion activity by core area for
fourth-quarter and full-year 2017.
Number of Number of
Number of
Number of
Operated Wells Wells Operated Wells
Wells Drilled
Drilled Completed Completed 4Q17
FY17 4Q17 FY17 4Q17
FY17 4Q17 FY17 Northern Delaware Basin
38 149 20 83 30 126 14 65 Southern Delaware Basin 14 61 11 44 24 53
17 36 Midland Basin 14 58 14 58 22 78 22 75 New Mexico Shelf 5 43 4
32 15 48 5 35 Total 71 311 49 217 91 305 58 211
The Company is currently running 19 rigs, including eight rigs
in the Northern Delaware Basin, six rigs in the Southern Delaware
Basin and five rigs in the Midland Basin. Additionally, the Company
is currently utilizing six completion crews.
Northern Delaware Basin
In the Northern Delaware Basin, Concho added 24 wells with at
least 60 days of production as of the end of fourth-quarter 2017.
The average 30-day peak and average 60-day peak rates for these
wells were 1,805 Boepd (68% oil) and 1,703 Boepd (67% oil),
respectively. The Company also achieved a record average lateral
length of 6,685 feet during fourth-quarter 2017.
Maximizing Recovery and Returns with Large-Scale Development
Projects
Concho continues to see strong performance from the Vast and
Windward projects, two large-scale development projects in the Red
Hills area. The Vast project includes seven wells targeting the
Wolfcamp Sands and Wolfcamp A Shale, and the Windward project
includes eight wells targeting the Avalon Shale. The Vast and
Windward projects have produced an aggregate 3 MMBoe (71% oil) in
the first four months of their production.
From these projects, Concho is collecting valuable data that
helps the Company optimize lateral placement, completion design and
facilities planning. In addition, both projects delivered
improvements in drilling days and stages completed per day.
Southern Delaware Basin
In the Southern Delaware Basin, Concho added three wells
targeting the Wolfcamp A with at least 60 days of production as of
the end of fourth-quarter 2017. The average 30-day peak and average
60-day peak rates for these wells were 1,644 Boepd (71% oil) and
1,474 Boepd (71% oil), respectively, and the average lateral length
of 10,354 feet set a Company record for the Southern Delaware
Basin.
Optimizing Development of Stacked Resource
Concho also recently completed a large-scale, multi-well project
in the Southern Delaware Basin. The Brass Monkey project,
originally an eight-well project, includes 10 wells testing
simultaneous development of the 3rd Bone Spring, Wolfcamp A and
Wolfcamp B with an average lateral length of 9,700 feet. The
average 30-day peak rate for the project was 26 MBoepd (73%
oil).
Midland Basin
Concho added six wells targeting the Wolfcamp A and Wolfcamp B
in the Midland Basin during fourth-quarter 2017. The average 30-day
peak and average 60-day peak rates for these wells were 1,272 Boepd
(82% oil) and 1,195 Boepd (83% oil), respectively, and the average
lateral length of 11,656 feet set a Company record for the Midland
Basin.
Improving Capital Productivity from Technology Deployed at the
Mabee Ranch Project
Concho recently completed the 13-well, two-mile Mabee Ranch
project located in Andrews County, Texas. The early production
results are strong, as the Mabee Ranch project has achieved an
initial 24-hour peak rate of approximately 15 MBoepd (85% oil).
Additionally, Concho is utilizing leading-edge technologies,
including fiber optic monitoring, to collect valuable proprietary
data with real-time and long-term implications for full-field
optimization. The Company expects to transfer these techniques to
other assets across the portfolio.
Fourth-Quarter and Full-Year 2017 Financial Summary
Concho’s average realized price for crude oil and natural gas
for fourth-quarter 2017, excluding the effect of commodity
derivatives, was $52.84 per Bbl and $3.33 per Mcf, respectively,
compared with $45.66 per Bbl and $2.93 per Mcf, respectively, for
fourth-quarter 2016. For 2017, Concho’s average realized price for
crude oil and natural gas, excluding the effect of commodity
derivatives, was $48.13 per Bbl and $3.07 per Mcf, respectively,
compared with $39.90 per Bbl and $2.23 per Mcf, respectively, for
2016.
Net income for fourth-quarter 2017 was $267 million, or $1.79
per diluted share, compared to net loss of $125 million, or $0.86
per diluted share, for fourth-quarter 2016. Adjusted net income
(non-GAAP), which excludes non-cash and unusual items, for
fourth-quarter 2017 was $98 million, or $0.66 per diluted share,
compared with adjusted net income (non-GAAP) of $28 million, or
$0.20 per diluted share, for fourth-quarter 2016.
Net income for full-year 2017 was $956 million, or $6.41 per
diluted share, compared to net loss of $1.5 billion, or $10.85 per
diluted share, for full-year 2016. Adjusted net income (non-GAAP),
which excludes non-cash and unusual items, for full-year 2017 was
$311 million, or $2.09 per diluted share, compared with adjusted
net income (non-GAAP) of $111 million, or $0.81 per diluted share,
for full-year 2016.
Net income for fourth-quarter and full-year 2017 reflected
income tax changes related to the Tax Cuts and Jobs Act. Due to the
reduction of the U.S. federal corporate income tax rate and
subsequent re-measurement of the Company’s net deferred tax
liability, the Company recorded a provisional non-cash decrease to
its income tax provision of $398 million and a corresponding
provisional reduction to its net non-current deferred tax
liability. For 2018, the Company estimates an effective tax rate of
approximately 25%, including state taxes, before discrete
items.
EBITDAX (non-GAAP) for fourth-quarter 2017 totaled $513 million,
compared to $396 million for fourth-quarter 2016. EBITDAX
(non-GAAP) for full-year 2017 was $1.9 billion, compared to $1.6
billion for full-year 2016.
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 as well as a
reconciliation of these measures to the associated GAAP
measures.
2017 Proved Reserves and Resource Potential
At December 31, 2017, Concho’s estimated proved reserves totaled
840 MMBoe, an increase of 17% from year-end 2016. The Company’s
proved reserves are approximately 60% crude oil and 40% natural
gas. Proved developed reserves totaled 588 MMBoe, an increase of
26% from year-end 2016. The Company’s proved developed reserves
represent approximately 70% of total proved reserves.
During 2017, Concho added 194 MMBoe of proved reserves primarily
from drilling and completion operations, resulting in a reserve
replacement ratio of 275%. The Company’s proved developed finding
and development cost was $8.68 per Boe for 2017.
Concho estimates current net resource potential to be
approximately 10 billion Boe, including total proved reserves, an
increase of 25% from year-end 2016. Concho’s current resource
potential is attributable to approximately 21,000 gross horizontal
drilling locations, underscoring the Company’s large-scale
horizontal development potential in the Permian Basin.
For a summary of estimated proved reserves, please see
“Estimated Year-End Proved Reserves” below, and for an explanation
of how the Company calculates and uses the reserves replacement
ratio and finding and development costs, please see “Supplemental
Measures” below.
Active Portfolio Management
During first-quarter 2018, Concho completed the sale of non-core
leasehold in Ward and Reeves Counties, Texas, for approximately
$280 million. The leasehold covers approximately 40,000 gross
(20,000 net) acres. These assets were primarily non-operated with
low working interest and not conducive to long-lateral development.
Proved reserves and net production associated with these assets was
minimal.
Additionally, the Company recently completed a strategic trade
with a large integrated oil company. For Concho, the trade enhances
its core development area in Mabee Ranch in the Midland Basin and
adds working interests to certain operated properties in Upton
County, Texas, and in the New Mexico Shelf. In the trade, Concho
conveyed its 32,000 acre checker-board leasehold position in
Culberson County, Texas.
These portfolio optimization activities accelerate value,
enhance Concho’s core leasehold position and further improve
capital allocation.
Financial Position and Liquidity
At December 31, 2017, Concho had total long-term debt of $2.7
billion, including approximately $320 million of borrowings
outstanding under its credit facility. Adjusted for divestiture
proceeds received in first-quarter 2018, the Company had total
long-term debt of $2.5 billion at December 31, 2017.
Outlook
High-quality acreage and scale within the Permian Basin enables
Concho to efficiently allocate capital while continuing to advance
manufacturing-style development with leading-edge drilling and
completion techniques.
Concho expects 2018 capital spending to be at the midpoint of
its capital guidance range of $1.9 billion to $2.1 billion, which
reflects the Company’s current outlook for service cost inflation.
The 2018 capital program is expected to be funded with cash flows
from operations and generate 20% crude oil growth and 16% to 20%
total production growth year-over-year. Approximately 93% of the
capital program is allocated to drilling and completion activities,
with approximately 65% of that capital directed towards large-scale
manufacturing projects. The Company’s 2018 capital program is
allocated among the following areas: Northern Delaware Basin (40%),
Southern Delaware Basin (25%), Midland Basin (30%) and the New
Mexico Shelf (5%).
Detailed guidance for the first quarter and full-year 2018 is
provided under “2018 Guidance” at the end of the release. The
Company’s capital guidance for 2018 excludes acquisitions and is
subject to change without notice depending upon a number of
factors, including commodity prices and industry conditions.
The Company provided a new three-year production growth outlook.
Concho expects to grow total production at a compound annual growth
rate of 20% from 2017 to 2020. The outlook reflects the Company’s
high-quality production base and strong operating momentum.
Additionally, the Company expects to deliver this growth within
cash flows from operations at an average crude oil price (WTI) in
the low-to-mid $50 per barrel range over the duration of the
outlook.
As with the Company’s 2018 outlook, growth over the three-year
period from 2017 to 2020 is the output of reinvesting high-margin
cash flow into its drilling program. To facilitate execution of the
program, Concho has secured sand and associated transportation
logistics. The sand will be sourced from several regional mines in
the Permian Basin. In addition to reducing operational risks across
the supply chain, the Company expects to capture well cost savings
from locking in a key component of completion operations.
Commodity Derivatives Update
The Company enters into commodity derivatives to manage its
exposure to commodity price fluctuations. For 2018, Concho has
crude oil swap contracts covering approximately 105 MBopd at a
weighted average price of $52.98 per Bbl. Please see the table
under “Derivatives Information” below for detailed information
about the Company’s current derivatives positions.
Conference Call
Concho will host a conference call tomorrow, February 21, 2018,
at 8:00 AM CT (9:00 AM ET) to discuss fourth quarter and full-year
2017 results. The telephone number and passcode to access the
conference call are provided below:
Dial-in: (844) 263-8298Intl. dial-in: (478) 219-0007Participant
Passcode: 2989439
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.
Upcoming Conferences
The Company will participate in the following upcoming
conferences:
Conference Date Conference
Presentation Time March 5, 2018 Raymond James 39th Annual
Institutional Investors Conference 8:15 AM CT March 26, 2018 Scotia
Howard Weil 46th Annual Energy Conference 10:55 AM CT
The presentations will be available on the Company’s website on
or prior to the day of the first conference.
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, guidance and projections regarding the Company’s future
financial position, operations, performance, business strategy, oil
and natural gas reserves, drilling program, production, 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 sources of
financing. The words “estimate,” “project,” “predict,” “believe,”
“expect,” “anticipate,” “potential,” “could,” “may,” “foresee,”
“plan,” “will,” “guidance,” “outlook,” “goal” or other similar
expressions that convey the uncertainty of future events or
outcomes are intended to identify forward-looking statements, which
generally are not historical in nature. However, the absence of
these words does not mean that the statements are not
forward-looking. These statements are based on certain assumptions
and analyses made by the Company based on management’s experience,
expectations and perception of historical trends, current
conditions, 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. The guidance capital program and
outlook presented herein are subject to change by the Company
without notice and the Company has no obligation to affirm or
update such information, except as required by law. 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; Quarterly Reports on Form
10-Q and Current Reports on Forms 8-K; risks relating to declines
in, or the sustained depression of, the prices the Company receives
for its oil and natural gas, or future prices that are lower than
those assumed; uncertainties about the estimated quantities of oil
and natural gas reserves; drilling, completion 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, climate change,
derivatives reform or the export of oil and natural gas; the impact
of current and potential changes to federal or state tax rules and
regulations, including the Tax Cuts and Jobs Act; evolving
cybersecurity risks, such as those involving unauthorized access,
denial-of-service attacks, malicious software, data privacy
breaches by employees, insiders or others with authorized access,
cyber or phishing-attacks, ransomware, malware, social engineering,
physical breaches or other actions; risks associated with
acquisitions, including costs and the ability to realize expected
benefits; 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 and natural gas liquids 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; 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.
Cautionary Statements Regarding Resource
The Company may use the term “resource potential” and similar
phrases to describe estimates of potentially recoverable
hydrocarbons that SEC rules prohibit from being included in filings
with the SEC. These are based on analogy to the Company’s existing
models applied to additional acres, additional zones and tighter
spacing and are the Company’s internal estimates of hydrocarbon
quantities that may be potentially discovered through exploratory
drilling or recovered with additional drilling or recovery
techniques. These quantities may not constitute “reserves” within
the meaning of the Society of Petroleum Engineer’s Petroleum
Resource Management System or SEC rules. Such estimates and
identified drilling locations have not been fully risked by Company
management and are inherently more speculative than proved reserves
estimates. Actual locations drilled and quantities that may be
ultimately recovered from the Company’s interests could differ
substantially from these estimates. There is no commitment by the
Company to drill all of the drilling locations that have been
attributed to these quantities. Factors affecting ultimate recovery
include the scope of the Company’s ongoing drilling program, which
will be directly affected by the availability of capital, drilling
and production costs, availability of drilling services and
equipment, drilling results, lease expirations, transportation
constraints, regulatory approvals, actual drilling results,
including geological and mechanical factors affecting recovery
rates, and other factors. Such estimates may change significantly
as development of the Company’s oil and natural gas assets provide
additional data. The Company’s production forecasts and
expectations for future periods are dependent upon many
assumptions, including estimates of production decline rates from
existing wells and the undertaking and outcome of future drilling
activity, which may be affected by significant commodity price
declines or drilling cost increases or other factors that are
beyond the Company’s control.
Concho Resources Inc. Consolidated Balance
Sheets Unaudited
December 31, (in millions, except
share and per share amounts) 2017
2016 Assets Current assets: Cash and cash equivalents
$ - $ 53 Accounts receivable, net of allowance for doubtful
accounts: Oil and natural gas 331 220 Joint operations and other
212 238 Inventory 14 16 Derivative instruments - 4 Prepaid costs
and other 35 31 Total current assets
592 562 Property and equipment: Oil and
natural gas properties, successful efforts method 21,267 18,476
Accumulated depletion and depreciation (8,460 ) (7,390 )
Total oil and natural gas properties, net 12,807 11,086 Other
property and equipment, net 234 216
Total property and equipment, net 13,041
11,302 Funds held in escrow - 43 Deferred loan costs, net 13
11 Intangible assets, net 26 24 Other assets 60
177 Total assets $ 13,732 $ 12,119
Liabilities and Stockholders’ Equity Current liabilities:
Accounts payable - trade $ 43 $ 28 Bank overdrafts 116 - Revenue
payable 183 132 Accrued drilling costs 330 359 Derivative
instruments 277 82 Other current liabilities 216
152 Total current liabilities 1,165
753 Long-term debt 2,691 2,741 Deferred income taxes
687 766 Noncurrent derivative instruments 102 96 Asset retirement
obligations and other long-term liabilities 172 140 Stockholders’
equity:
Common stock, $0.001 par value;
300,000,000 authorized; 149,324,849 and 146,488,685 shares issued
at December 31, 2017 and 2016, respectively
- - Additional paid-in capital 7,142 6,783 Retained earnings 1,840
884
Treasury stock, at cost; 598,049 and
429,708 shares at December 31, 2017 and 2016, respectively
(67
)
(44
) Total stockholders’ equity 8,915 7,623
Total liabilities and stockholders’ equity $ 13,732 $
12,119
Concho Resources Inc.
Consolidated Statements of Operations Unaudited
Three Months
Ended Years Ended December 31, December
31, (in millions, except per share amounts)
2017 2016 2017
2016 Operating revenues: Oil sales $ 631 $ 421
$ 2,092 $ 1,350 Natural gas sales 149 104
494 285 Total operating revenues
780 525 2,586
1,635
Operating costs and expenses: Oil and natural
gas production 115 80 408 320 Production and ad valorem taxes 59 42
199 131 Exploration and abandonments 17 23 59 77 Depreciation,
depletion and amortization 298 277 1,146 1,167 Accretion of
discount on asset retirement obligations 2 2 8 7 Impairments of
long-lived assets - - - 1,525
General and administrative (including
non-cash stock-based compensation of $17 and $16 for the three
months ended December 31, 2017 and 2016, respectively, and $60 and
$59 for the years ended December 31, 2017 and 2016,
respectively)
64 66 244 226 Loss on derivatives 415 193 126 369 Gain on
disposition of assets, net (11 ) (9 ) (678 )
(118 ) Total operating costs and expenses 959
674 1,512 3,704
Income
(loss) from operations (179 ) (149 ) 1,074
(2,069 )
Other income (expense): Interest
expense (28 ) (42 ) (146 ) (204 ) Loss on extinguishment of debt -
(28 ) (66 ) (56 ) Other, net 1 -
19 (9 ) Total other expense (27 ) (70 )
(193 ) (269 )
Income (loss) before income
taxes (206 ) (219 ) 881 (2,338 ) Income tax benefit 473
94 75 876
Net
income (loss) $ 267 $ (125 ) $ 956 $ (1,462 )
Earnings per share: Basic net income (loss) $ 1.80 $ (0.86 )
$ 6.44 $ (10.85 ) Diluted net income (loss) $ 1.79 $ (0.86 ) $ 6.41
$ (10.85 )
Concho Resources Inc.
Consolidated Statements of Cash Flows Unaudited
Years Ended December
31, (in millions) 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES: Net income
(loss) $ 956 $ (1,462 ) Adjustments to reconcile net income (loss)
to net cash provided by operating activities: Depreciation,
depletion and amortization 1,146 1,167 Accretion of discount on
asset retirement obligations 8 7 Impairments of long-lived assets -
1,525 Exploration and abandonments, including dry holes 27 57
Non-cash stock-based compensation expense 60 59 Deferred income
taxes (71 ) (864 ) Gain on disposition of assets, net (678 ) (118 )
Loss on derivatives 126 369 Net settlements received from
derivatives 79 625 Loss on extinguishment of debt 66 56 Other
non-cash items (1 ) 14 Changes in operating assets and liabilities,
net of acquisitions and dispositions: Accounts receivable (126 ) 32
Prepaid costs and other (9 ) 6 Inventory - 2 Accounts payable 14 15
Revenue payable 52 (38 ) Other current liabilities 46
(68 ) Net cash provided by operating activities 1,695
1,384
CASH FLOWS FROM INVESTING
ACTIVITIES: Additions to oil and natural gas properties (1,581
) (1,046 ) Acquisitions of oil and natural gas properties (908 )
(1,351 ) Additions to property, equipment and other assets (44 )
(61 ) Proceeds from the disposition of assets 803 332 Deposits on
dispositions of oil and natural gas properties 29 - Direct
transaction costs for disposition of assets (18 ) - Funds held in
escrow - (43 ) Contributions to equity method investments -
(56 ) Net cash used in investing activities
(1,719 ) (2,225 )
CASH FLOWS FROM FINANCING
ACTIVITIES: Proceeds from issuance of debt 2,795 600 Payments
of debt (2,829 ) (1,200 ) Debt extinguishment costs (63 ) (42 )
Excess tax deficiency from stock-based compensation - (1 ) Net
proceeds from issuance of common stock - 1,327 Payments for loan
costs (25 ) (7 ) Purchase of treasury stock (23 ) (12 ) Increase in
bank overdrafts 116 - Net cash provided
by (used in) financing activities (29 ) 665
Net decrease in cash and cash equivalents (53 ) (176 ) Cash and
cash equivalents at beginning of period 53 229
Cash and cash equivalents at end of period $ - $ 53
SUPPLEMENTAL CASH FLOWS: Cash paid for interest $ 139
$ 232 Cash paid for income taxes $ 13 $ -
NON-CASH INVESTING AND
FINANCING ACTIVITIES: Issuance of common stock for business
combinations $ 291 $ 768
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 Years Ended December 31, December
31, 2017
2016 2017 2016
Production and operating data: Net production
volumes: Oil (MBbl) 11,945 9,220 43,472 33,840 Natural gas
(MMcf) 44,848 35,394 161,089 127,481 Total (MBoe) 19,420 15,119
70,320 55,087
Average daily production volumes: Oil
(Bbl) 129,837 100,217 119,101 92,459 Natural gas (Mcf) 487,478
384,717 441,340 348,309 Total (Boe) 211,083 164,337 192,658 150,511
Average prices per unit: Oil, without derivatives
(Bbl) $ 52.84 $ 45.66 $ 48.13 $ 39.90 Oil, with derivatives (Bbl)
(a) $ 48.55 $ 50.32 $ 49.93 $ 57.90 Natural gas, without
derivatives (Mcf) $ 3.33 $ 2.93 $ 3.07 $ 2.23 Natural gas, with
derivatives (Mcf) (a) $ 3.39 $ 2.93 $ 3.06 $ 2.36 Total, without
derivatives (Boe) $ 40.18 $ 34.70 $ 36.78 $ 29.68 Total, with
derivatives (Boe) (a) $ 37.69 $ 37.55 $ 37.88 $ 41.03
Operating costs and expenses per Boe: (b) Oil and natural
gas production $ 5.92 $ 5.31 $ 5.80 $ 5.81 Production and ad
valorem taxes $ 3.02 $ 2.80 $ 2.82 $ 2.38 Depreciation, depletion
and amortization $ 15.33 $ 18.32 $ 16.29 $ 21.19 General and
administrative $ 3.19 $ 4.30 $ 3.46 $ 4.09
(a) Includes the
effect of net cash receipts from (payments on) derivatives:
Three Months Ended
Years Ended December 31, December 31, (in
millions) 2017 2016
2017 2016 Net cash receipts from (payments
on) derivatives: Oil derivatives $ (50 ) $ 43 $ 79 $ 609
Natural gas derivatives 3 - - 16
Total $ (47 ) $ 43 $ 79 $ 625
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. (b)
Per Boe amounts calculated using dollars and volumes rounded to
thousands.
Concho Resources Inc. Estimated
Year-End Proved Reserves Unaudited
The table below provides a summary of changes in total proved
reserves for the year ended December 31, 2017, as well as proved
developed reserves at the beginning and end of the year.
(MMBoe) 2017
Total proved reserves Balance, January 1 720
Purchases of minerals-in-place 34 Sales of minerals-in-place (4 )
Extensions and discoveries 174 Revisions: Other non-price related
revisions (43 ) Price-related revisions 29 Production (70 )
Balance, December 31 840
Proved developed
reserves Balance, January 1 466 Balance, December 31
588
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
Years Ended December 31, December 31, (in
millions) 2017 2016
2017 2016 Property acquisition
costs: Proved $ 2 $ 725 $ 303 $ 982 Unproved 40 982 905 1,154
Exploration 296 189 1,021 701 Development 175 162
653 449 Total costs incurred for oil and natural gas
properties $ 513 $ 2,058 $ 2,882 $ 3,286
Concho Resources
Inc. Derivatives Information Unaudited
The table below provides data associated with the Company’s
derivatives at February 20, 2018, for the periods indicated:
2018
First Second Third Fourth
Quarter Quarter Quarter Quarter
Total 2019 2020 Oil Price Swaps:
(a) Volume (Bbl) 11,038,629 10,178,170 8,944,318 8,106,007
38,267,124 27,306,500 4,026,000 Price (Bbl) $ 53.01 $ 53.30 $ 52.98
$ 52.53 $ 52.98 $ 52.95 $ 54.80
Oil Basis Swaps: (b)
Volume (Bbl) 10,674,000 9,492,000 8,465,000 7,757,000 36,388,000
26,064,500 8,784,000 Price (Bbl) $ (0.75 ) $ (0.81 ) $ (0.85 ) $
(0.89 ) $ (0.82 ) $ (0.97 ) $ (0.09 )
Natural Gas Price
Swaps: (c) Volume (MMBtu) 17,833,000 16,979,000 15,740,000
14,778,000 65,330,000 17,840,992 - Price (MMBtu) $ 3.05 $ 3.04 $
3.04 $ 3.03 $ 3.04 $ 2.86 $ -
(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
Years Ended December 31, December 31, (in
millions, except per share amounts) 2017
2016 2017 2016 Net
income (loss) - as reported $ 267 $ (125 ) $ 956 $ (1,462 )
Adjustments for certain non-cash and unusual items:
Loss on derivatives 415 193 126 369 Net cash receipts from
(payments on) derivatives (47 ) 43 79 625 Impairments of long-lived
assets - - - 1,525 Leasehold abandonments 3 20 27 60 Loss on
extinguishment of debt - 28 66 56 Gain on disposition of assets and
other (9 ) (9 ) (678 ) (117 ) Tax impact (133 ) (101 ) 139 (924 )
Excess tax benefit - - (6 ) - Changes in deferred taxes for enacted
tax law changes and other estimates (398 ) (21 )
(398 ) (21 )
Adjusted net income $ 98 $
28 $ 311 $ 111
Net income (loss) per
diluted share - as reported $ 1.79 $ (0.86 ) $ 6.41 $ (10.85 )
Adjustments for certain non-cash and unusual items per
diluted share: Loss on derivatives 2.77 1.33 0.85 2.73 Net cash
receipts from (payments on) derivatives (0.32 ) 0.30 0.52 4.63
Impairments of long-lived assets - - - 11.30 Leasehold abandonments
0.02 0.14 0.18 0.44 Loss on extinguishment of debt - 0.20 0.44 0.42
Gain on disposition of assets and other (0.06 ) (0.06 ) (4.54 )
(0.86 ) Tax impact (0.89 ) (0.70 ) 0.93 (6.85 ) Excess tax benefit
- - (0.04 ) - Changes in deferred taxes for enacted tax law changes
and other estimates (2.65 ) (0.15 ) (2.66 )
(0.15 )
Adjusted net income per diluted share $ 0.66
$ 0.20 $ 2.09 $ 0.81
Adjusted
earnings per share: Basic net income $ 0.67 $ 0.20 $ 2.10 $
0.81 Diluted net income $ 0.66 $ 0.20 $ 2.09 $ 0.81
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.
The Company defines EBITDAX as net income (loss), plus (1)
exploration and abandonments expense, (2) depreciation, depletion
and amortization expense, (3) accretion of discount on asset
retirement obligations expense, (4) impairments of long-lived
assets, (5) non-cash stock-based compensation expense, (6) loss on
derivatives, (7) net cash receipts from (payments on) derivatives,
(8) gain on disposition of assets, net, (9) interest expense, (10)
loss on extinguishment of debt and (11) federal and state income
tax 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.
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. 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 income (loss) to EBITDAX (non-GAAP) for the periods
indicated:
Three Months Ended
Years Ended December 31, December 31, (in
millions) 2017 2016
2017 2016 Net income (loss) $
267 $ (125 ) $ 956 $ (1,462 ) Exploration and abandonments 17 23 59
77 Depreciation, depletion and amortization 298 277 1,146 1,167
Accretion of discount on asset retirement obligations 2 2 8 7
Impairments of long-lived assets - - - 1,525 Non-cash stock-based
compensation 17 16 60 59 Loss on derivatives 415 193 126 369 Net
cash receipts from (payments on) derivatives (47 ) 43 79 625 Gain
on disposition of assets, net (11 ) (9 ) (678 ) (118 ) Interest
expense 28 42 146 204 Loss on extinguishment of debt - 28 66 56
Income tax benefit (473 ) (94 ) (75 )
(876 )
EBITDAX $ 513 $ 396 $ 1,893 $
1,633
Concho Resources Inc. Supplemental
Measures Unaudited
Reserves Replacement Ratio
The Company uses the reserves replacement ratio as an indicator
of the Company’s ability to replenish annual production volumes and
grow its reserves, thereby providing some information on the
sources of future production. The reserves replacement ratio is a
statistical indicator that is limited because it typically varies
widely based on the extent and timing of discoveries and property
acquisitions. Its predictive and comparative value is also limited
for the same reasons. In addition, since the ratio does not embed
the cost or timing of future production of new reserves, it cannot
be used as a measure of value creation. The reserve replacement
ratio of approximately 275% was calculated by dividing net proved
reserve additions of 194 MMBoe (the sum of purchases, extensions
and discoveries and total revisions) by production of 70 MMBoe.
Proved Developed Finding and Development (“F&D”)
Cost
Proved developed F&D cost is an indicator used to assist in
an evaluation of how much it costs the Company, on a per Boe basis,
to add proved reserves. The Company’s proved developed F&D cost
of $8.68 is calculated by dividing the sum of exploration and
development costs incurred of $1.7 billion by the change in proved
developed reserves year-over-year, excluding current year
production, of 192 MMBoe. This calculation does not include the
future development costs required for the development of proved
undeveloped reserves.
Concho Resources Inc. 2018 Guidance
For 2018, the Company is providing “gathering, processing and
transportation” expense guidance. This line item includes
gathering, processing and transportation expense on assets that
have specific marketing arrangements with fees prior to the
transfer of control of the crude oil and natural gas that we
produce. Gathering, processing and transportation expense is the
result of the Company’s adoption and application of the new revenue
recognition standard ASU No. 2014-09, “Revenue from Contracts with
Customers” (Topic 606). The majority of the Company’s gathering,
processing and transportation expense continues to be recorded
within the Company’s realized crude oil and natural gas price
realizations.
For the first quarter of 2018, Concho expects production to
average between 215 MBoepd and 219 MBoepd.
The following table summarizes the Company’s operational and
financial guidance for 2018.
2018 Production Total production growth 16% -
20% Crude oil production growth 20%
Price realizations,
excluding commodity derivatives Crude oil differential to NYMEX
($/Bbl) ($2.00) - ($2.50) Natural gas (per Mcf) (% of NYMEX)
90% - 100%
Operating costs and expenses Lease operating expense
and workover costs ($/Boe) $6.00 - $6.50 Gathering, processing and
transportation $0.50 - $0.60 Oil & natural gas taxes (% of oil
and natural gas revenues) 7.75% General and administrative
(“G&A”) expense ($/Boe): Cash G&A expense $2.50 - $2.80
Non-cash stock-based compensation $0.80 - $1.00 Depletion,
depreciation and amortization expense ($/Boe) $15.00 - $16.00
Exploration and other ($/Boe) $0.25 - $0.75 Interest expense ($ in
millions): Cash $110 - $120 Non-cash $6 Income tax rate 25%
Capital program ($ in billions) $1.9 - $2.1
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version on businesswire.com: http://www.businesswire.com/news/home/20180220006541/en/
Concho Resources Inc.Megan P. Hays, 432-685-2533Vice
President of Investor Relations and Public AffairsorMary T.
Starnes, 432-221-0477Investor Relations Manager
Concho Resources (NYSE:CXO)
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