Delivers Strong Results for Fourth-Quarter
2019
Provides 2020 Outlook for Oil Production
Growth on Lower Capital Spending Year over Year
Increases Dividend 60%
Concho Resources Inc. (NYSE: CXO) (the “Company” or
“Concho”) today reported financial and operating results for
fourth-quarter and full-year 2019.
Highlights
Fourth Quarter
- Delivered oil production volumes of 215 MBopd, exceeding the
high end of the Company's guidance range.
- Completed the New Mexico Shelf divestiture, enabling Concho to
achieve its debt-reduction target and repurchase $250 million of
shares during the quarter.
- Generated cash flow from operating activities of $769 million;
operating cash flow before working capital changes (non-GAAP) was
$801 million, exceeding exploration and development costs incurred
of $614 million.
- Reported net loss of $471 million, or $2.38 per share. Adjusted
net income (non-GAAP) totaled $206 million, or $1.03 per
share.
- Reported $853 million of adjusted EBITDAX (non-GAAP).
Full Year
- Increased oil production volumes 25% year over year.
- Completed $1.3 billion in non-core asset sales.
- Paid $100 million in dividends, initiated a $1.5 billion share
repurchase program and repurchased $250 million of shares in
2019.
- Generated cash flow from operating activities of $2.8 billion;
operating cash flow before working capital changes (non-GAAP) was
$2.9 billion.
- Reported net loss of $705 million, or $3.55 per share. Adjusted
net income (non-GAAP) totaled $611 million, or $3.05 per
share.
- Reported $3.1 billion of adjusted EBITDAX (non-GAAP).
2020 Outlook
- Increasing Concho's quarterly dividend 60% to $0.20 per
share.
- Planning a $2.6 to $2.8 billion capital program, representing a
10% reduction year over year at the midpoint of the guidance.
- Expecting to generate 10% to 12% annual oil volume growth, pro
forma for the New Mexico Shelf divestiture.
See “Supplemental Non-GAAP Financial Measures” below for
descriptions of the above non-GAAP measures as well as a
reconciliation of these measures to the associated GAAP (as defined
herein) measures.
Tim Leach, Chairman and Chief Executive Officer, commented,
“During the fourth quarter, we delivered strong operational and
financial performance, with oil volumes exceeding our guidance
range and cash flow from operations totaling $801 million,
excluding working capital changes. This exceeded exploration and
development costs of $614 million, resulting in free cash flow of
$187 million for the quarter. Our cost structure continued to
improve as well, with fourth quarter controllable costs coming in
below our year-end 2020 target of $9.00 per Boe.
We carry this focus into 2020. Our strategic priorities are to
grow margins, grow free cash flow, grow distributions and advance
our sustainability progress. We are off to a strong start with a
disciplined, returns-focused capital program that is expected to
increase oil production 10% to 12% year over year on a pro forma
basis for asset sales. The capital program also enables us to
strengthen distributions to shareholders, with a 60% increase to
our quarterly dividend. With improving capital efficiency and a
strong foundation of high-margin drilling opportunities, Concho is
well positioned to deliver strong returns for investors.”
Fourth-Quarter 2019 Summary
Fourth-quarter 2019 oil production volumes increased 8% year
over year to 215 thousand barrels per day (MBopd). Natural gas
production for fourth-quarter 2019 totaled 735 million cubic feet
per day (MMcfpd). The Company’s total production for fourth-quarter
2019 grew 10% year over year to 337 thousand barrels of oil
equivalent per day (MBoepd).
Net loss for fourth-quarter 2019 was $471 million, or $2.38 per
share. Special items impacting earnings for the quarter included a
$201 million goodwill impairment charge and a $133 million loss on
the disposition of assets, primarily related to certain exchanges
of oil and natural gas properties. Excluding these and other
special items, fourth-quarter 2019 adjusted net income (non-GAAP)
was $206 million, or $1.03 per share. Concho’s average realized
price for oil and natural gas for fourth-quarter 2019, excluding
the effect of commodity derivatives, was $56.63 per Bbl and $1.88
per Mcf, respectively.
Achieved Controllable Cost Target Early
The Company is focused on improving operating margins by
reducing its cost structure and established a $9.00 per Boe
controllable cost target by year-end 2020. Controllable costs
include oil and natural gas production expenses (consisting of
lease operating and workover expenses), cash general and
administrative expenses (which excludes non-cash stock-based
compensation) and interest expense. For fourth-quarter 2019,
controllable costs totaled $8.43 per Boe, representing a 17%
decrease year over year and achieving the Company's target one year
early.
Generated Strong Cash Flow
For fourth-quarter 2019, cash flow from operating activities was
$769 million, including $32 million in working capital changes.
Operating cash flow before working capital changes (non-GAAP) was
$801 million, exceeding fourth quarter costs incurred for
exploration and development activities of $614 million.
Completed New Mexico Shelf Asset Sale
On November 1, 2019, the Company completed the
previously-announced sale of its New Mexico Shelf assets. The sale
proceeds enabled Concho to achieve its debt reduction target, by
paying down its credit facility, while delivering additional
returns to shareholders under its $1.5 billion share repurchase
program. During fourth-quarter 2019, the Company repurchased 3.3
million shares for $250 million at an average price of $75.75 per
share.
Full-Year 2019 Summary
Total production for 2019 increased 26% to 331 MBoepd, including
a 25% increase in oil production to 209 MBopd. Natural gas
production for 2019 was 731 MMcfpd.
For 2019, Concho’s average realized price for oil and natural
gas, excluding the effect of commodity derivatives, was $54.03 per
Bbl and $1.74 per Mcf, respectively, compared with $56.22 per Bbl
and $3.40 per Mcf, respectively, for 2018.
Net loss for 2019 was $705 million, or $3.55 per share, compared
with net income of $2.3 billion, or $13.25 per share, in 2018.
Excluding non-cash and special items, full-year 2019 adjusted net
income (non-GAAP) was $611 million, or $3.05 per share, compared
with adjusted net income of $792 million, or $4.59 per share, for
full-year 2018.
Adjusted EBITDAX (non-GAAP) for 2019 totaled $3.1 billion,
compared with $2.8 billion in 2018.
For 2019, cash flow from operating activities was $2.8 billion,
including $40 million in working capital changes. Operating cash
flow before working capital changes (non-GAAP) was $2.9 billion.
Costs incurred for exploration and development activities totaled
$3.0 billion for the year.
2019 Proved Reserves
At December 31, 2019, Concho’s estimated proved reserves totaled
1.0 billion Boe, compared to 1.2 billion Boe at year-end 2018. The
Company’s proved reserves are approximately 62% oil and 38% natural
gas. Proved developed reserves totaled 745 MMBoe, or 74% of total
proved reserves, compared to 69% at year-end 2018. The reduction in
proved reserves year over year is primarily attributable to the
sale of the Company's New Mexico Shelf assets, performance
revisions from the Company's well-spacing tests, the decline in oil
and natural gas prices used to determine proved reserves and the
removal of proved undeveloped reserves that the Company no longer
expects to develop within the SEC mandated development window. For
a summary of the Company’s estimated proved reserves, see Estimated
Year-End Proved Reserves below.
Outlook
For 2020, Concho is planning to invest $2.6 to $2.8 billion. The
Company's activity is expected to result in 300 to 320 gross
operated well completions with an average lateral length of 10,000
feet, as compared to 294 gross operated well completions with an
average lateral length of approximately 9,000 feet in 2019. This
activity reflects efficiency gains that the Company has realized,
which enable the Company to complete approximately 10% more lateral
feet year over year on approximately 90% of the capital. Oil
production volumes are expected to increase 10% to 12% year over
year (pro forma for the sale of the New Mexico Shelf assets).
First-quarter 2020 production is expected to be 316 to 325 MBoepd
(202 to 208 MBopd).
60% Increase in Quarterly Dividend
Our high-quality asset base and strong operating margins provide
sustainable free cash flow growth that supports increasing returns
to shareholders. Consistent with Concho's strategic priorities to
grow margins, free cash flow and distributions to shareholders, the
Company's Board of Directors approved a 60% increase to the
quarterly dividend, from $0.125 to $0.20 per share. The next
quarterly dividend is payable on March 27, 2020, to stockholders of
record as of February 28, 2020.
Commodity Derivatives Update
The Company’s commodity derivatives strategy is intended to
manage its exposure to commodity price fluctuations. Please see the
table under “Derivatives Information” below for detailed
information about Concho’s current derivatives positions.
Conference Call
Concho will host a conference call tomorrow, February 19, 2020,
at 8:00 AM CT (9:00 AM ET) to discuss fourth-quarter and full-year
2019 results. The telephone number and passcode to access the
conference call are provided below:
Dial-in: (844) 263-8298 Intl. dial-in: (478) 219-0007
Participant Passcode: 8389804
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 is scheduled to present at the Credit Suisse 25th
Annual Energy Summit in Vail, Colorado on Monday, March 2, 2020 at
12:00 PM CT (11:00 AM MT). The presentation will be available on
the Company's website prior to the Company's appearance at the
conference.
About Concho Resources
Concho Resources (NYSE: CXO) is one of the largest
unconventional shale producers in the Permian Basin, with
operations focused on safely and efficiently developing and
producing oil and natural gas resources. We are working today to
deliver a better tomorrow for our shareholders, people and
communities. For more information about Concho, visit
www.concho.com.
Forward-Looking Statements and Cautionary Statements
The foregoing contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements, other than statements of historical fact, included
in this press release that address activities, events or
developments that the Company expects, believes or anticipates will
or may occur in the future are forward-looking statements. The
words “estimate,” “project,” “predict,” “believe,” “expect,”
“anticipate,” “potential,” “could,” “may,” “enable,” “strategy,”
“intend," “positioned,” “foresee,” “plan,” “will,” “guidance,”
“outlook,” “goal” or other similar expressions that convey the
uncertainty of future events or outcomes are intended to identify
forward-looking statements, which generally are not historical in
nature. However, the absence of these words does not mean that the
statements are not forward-looking. These statements are based on
certain assumptions and analyses made by the Company based on
management’s experience, expectations and perception of historical
trends, current conditions, current plans, anticipated future
developments, expected financings and other factors believed to be
appropriate. Forward-looking statements are not guarantees of
performance. Although the Company believes the expectations
reflected in its forward-looking statements are reasonable and are
based on reasonable assumptions, no assurance can be given that
these assumptions are accurate or that any of these expectations
will be achieved (in full or at all) or will prove to have been
correct. Moreover, such statements are subject to a number of
assumptions, risks and uncertainties, many of which are beyond the
control of the Company, which may cause actual results to differ
materially from those implied or expressed by the forward-looking
statements. These include the risk factors and other information
discussed or referenced in the Company’s most recent Annual Report
on Form 10-K and other filings with the Securities and Exchange
Commission. Any forward-looking statement speaks only as of the
date on which such statement is made, and the Company undertakes no
obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as required by applicable law. Information on Concho’s
website is not part of this press release.
Use of Non-GAAP Financial Measures
To supplement the presentation of the Company’s financial
results prepared in accordance with U.S. generally accepted
accounting principles (GAAP), this press release contains certain
financial measures that are not prepared in accordance with GAAP,
including adjusted net income, adjusted earnings per share,
adjusted EBITDAX, operating cash flow before working capital
changes and free cash flow.
See “Supplemental Non-GAAP Financial Measures” below for a
description and reconciliation of each non-GAAP measure presented
in this press release to the most directly comparable financial
measure calculated in accordance with GAAP.
Concho Resources Inc.
Consolidated Balance
Sheets
Unaudited
(in millions, except share and per
share amounts)
December 31, 2019
December 31, 2018
Assets
Current assets:
Cash and cash equivalents
$
70
$
—
Accounts receivable, net of allowance for
doubtful accounts:
Oil and natural gas
584
466
Joint operations and other
304
365
Inventory
30
35
Derivative instruments
6
484
Prepaid costs and other
61
59
Total current assets
1,055
1,409
Property and equipment:
Oil and natural gas properties, successful
efforts method
28,785
31,706
Accumulated depletion and depreciation
(7,895
)
(9,701
)
Total oil and natural gas properties,
net
20,890
22,005
Other property and equipment, net
437
308
Total property and equipment, net
21,327
22,313
Deferred loan costs, net
7
10
Goodwill
1,917
2,224
Intangible assets, net
17
19
Noncurrent derivative instruments
11
211
Other assets
398
108
Total assets
$
24,732
$
26,294
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable - trade
$
53
$
50
Book overdrafts
—
159
Revenue payable
268
253
Accrued drilling costs
386
574
Derivative instruments
112
—
Other current liabilities
363
320
Total current liabilities
1,182
1,356
Long-term debt
3,955
4,194
Deferred income taxes
1,654
1,808
Noncurrent derivative instruments
7
—
Asset retirement obligations and other
long-term liabilities
152
168
Stockholders’ equity:
Common stock, $0.001 par value;
300,000,000 authorized; 198,863,681 and 201,288,884 shares issued
at December 31, 2019 and 2018, respectively
—
—
Additional paid-in capital
14,608
14,773
Retained earnings
3,320
4,126
Treasury stock, at cost; 1,175,026 and
1,031,655 shares at December 31, 2019 and 2018, respectively
(146
)
(131
)
Total stockholders’ equity
17,782
18,768
Total liabilities and stockholders’
equity
$
24,732
$
26,294
Concho Resources Inc.
Consolidated Statements of
Operations
Unaudited
Three Months Ended December
31,
Years Ended December
31,
(in millions, except per share
amounts)
2019
2018
2019
2018
Operating revenues:
Oil sales
$
1,119
$
898
$
4,126
$
3,443
Natural gas sales
127
169
466
708
Total operating revenues
1,246
1,067
4,592
4,151
Operating costs and expenses:
Oil and natural gas production
164
174
716
590
Production and ad valorem taxes
94
76
349
305
Gathering, processing and
transportation
42
19
115
55
Exploration and abandonments
111
29
201
65
Depreciation, depletion and
amortization
533
445
1,964
1,478
Accretion of discount on asset retirement
obligations
2
3
10
10
Impairments of long-lived assets
2
—
890
—
Impairments of goodwill
201
—
282
—
General and administrative (including
non-cash stock-based compensation of $18 and $24 for the three
months ended December 31, 2019 and 2018, respectively, and $85 and
$82 for the years ended December 31, 2019 and 2018,
respectively)
72
90
326
311
(Gain) loss on derivatives
450
(1,625
)
895
(832
)
(Gain) loss on disposition of assets,
net
133
(81
)
(170
)
(800
)
Transaction costs
—
—
1
39
Total operating costs and expenses
1,804
(870
)
5,579
1,221
Income (loss) from operations
(558
)
1,937
(987
)
2,930
Other income (expense):
Interest expense
(44
)
(46
)
(185
)
(149
)
Other, net
2
—
313
108
Total other income (expense)
(42
)
(46
)
128
(41
)
Income (loss) before income
taxes
(600
)
1,891
(859
)
2,889
Income tax (expense) benefit
129
(378
)
154
(603
)
Net income (loss)
$
(471
)
$
1,513
$
(705
)
$
2,286
Earnings per share:
Basic net income (loss)
$
(2.38
)
$
7.56
$
(3.55
)
$
13.28
Diluted net income (loss)
$
(2.38
)
$
7.55
$
(3.55
)
$
13.25
Concho Resources Inc. Earnings per
Share Unaudited
The Company uses the two-class method of calculating earnings
per share because certain of the Company’s unvested share-based
awards qualify as participating securities.
The Company’s basic earnings (loss) per share attributable to
common stockholders is computed as (i) net income (loss) as
reported, (ii) less participating basic earnings (iii) divided by
weighted average basic common shares outstanding. The Company’s
diluted earnings (loss) per share attributable to common
stockholders is computed as (i) basic earnings (loss) attributable
to common stockholders, (ii) plus reallocation of participating
earnings (iii) divided by weighted average diluted common shares
outstanding.
The following table reconciles the Company’s earnings (loss)
from operations and earnings (loss) attributable to common
stockholders to the basic and diluted earnings (loss) used to
determine the Company’s earnings per share amounts for the periods
indicated under the two-class method:
Three Months Ended December
31,
Years Ended December
31,
(in millions)
2019
2018
2019
2018
Net income (loss) as reported
$
(471
)
$
1,513
$
(705
)
$
2,286
Participating basic earnings (a)
—
(10
)
(1
)
(17
)
Basic earnings (loss) attributable to
common stockholders
(471
)
1,503
(706
)
2,269
Reallocation of participating earnings
—
—
—
—
Diluted earnings (loss) attributable to
common stockholders
$
(471
)
$
1,503
$
(706
)
$
2,269
(a) Unvested restricted stock awards
represent participating securities because they participate in
nonforfeitable dividends or distributions with the common equity
holders of the Company. Participating earnings represent the
distributed and undistributed earnings of the Company attributable
to the participating securities. Unvested restricted stock awards
do not participate in undistributed net losses as they are not
contractually obligated to do so.
The following table is a reconciliation of the basic weighted
average common shares outstanding to diluted weighted average
common shares outstanding for the periods indicated:
Three Months Ended December
31,
Years Ended December
31,
(in thousands)
2019
2018
2019
2018
Weighted average common shares
outstanding:
Basic
198,121
198,885
198,984
170,925
Dilutive performance units
—
269
—
324
Diluted
198,121
199,154
198,984
171,249
Concho Resources Inc.
Consolidated Statements of
Cash Flows
Unaudited
Years Ended December
31,
(in millions)
2019
2018
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)
$
(705
)
$
2,286
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, depletion and
amortization
1,964
1,478
Accretion of discount on asset retirement
obligations
10
10
Impairments of long-lived assets
890
—
Impairments of goodwill
282
—
Exploration and abandonments
166
35
Non-cash stock-based compensation
expense
85
82
Deferred income taxes
(154
)
605
Net gain on disposition of assets and
other non-operating items
(459
)
(800
)
(Gain) loss on derivatives
895
(832
)
Net settlements paid on derivatives
(98
)
(218
)
Other
—
(92
)
Changes in operating assets and
liabilities, net of acquisitions and dispositions:
Accounts receivable
(90
)
(35
)
Prepaid costs and other
(2
)
(10
)
Inventory
1
(12
)
Accounts payable
3
1
Revenue payable
28
52
Other current liabilities
20
8
Net cash provided by operating
activities
2,836
2,558
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to oil and natural gas
properties
(3,069
)
(2,496
)
Acquisitions of oil and natural gas
properties
(54
)
(136
)
Additions to property, equipment and other
assets
(117
)
(90
)
Proceeds from the disposition of
assets
1,260
361
Direct transaction costs for asset
acquisitions and dispositions
(13
)
(3
)
Distribution from equity method
investment
—
148
Net cash used in investing activities
(1,993
)
(2,216
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under credit facility
2,935
3,316
Payments on credit facility
(3,177
)
(3,396
)
Issuance of senior notes, net
—
1,595
Repayments of RSP debt
—
(1,690
)
Debt extinguishment costs
—
(83
)
Payments for loan costs
—
(16
)
Payment of common stock dividends
(100
)
—
Purchases of treasury stock
(15
)
(64
)
Purchases of common stock under share
repurchase program
(250
)
—
Decrease in book overdrafts
(159
)
(4
)
Other
(7
)
—
Net cash used in financing activities
(773
)
(342
)
Net increase in cash and cash
equivalents
70
—
Cash and cash equivalents at beginning of
period
—
—
Cash and cash equivalents at end of
period
$
70
$
—
SUPPLEMENTAL CASH FLOWS:
Cash paid for interest
$
207
$
118
Cash paid for income taxes
$
—
$
2
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock for business
combinations
$
—
$
7,549
Concho Resources Inc.
Summary Production and Price
Data
Unaudited
The following table sets forth summary
information concerning production and operating data for the
periods indicated:
Three Months Ended December
31,
Years Ended December
31,
2019
2018
2019
2018
Production and operating data:
Net production volumes:
Oil (MBbl)
19,767
18,304
76,369
61,251
Natural gas (MMcf)
67,581
59,693
266,865
208,326
Total (MBoe)
31,031
28,253
120,847
95,972
Average daily production
volumes:
Oil (Bbl)
214,859
198,957
209,230
167,811
Natural gas (Mcf)
734,576
648,837
731,137
570,756
Total (Boe)
337,288
307,097
331,086
262,937
Average prices per unit: (a)
Oil, without derivatives (Bbl)
$
56.63
$
49.10
$
54.03
$
56.22
Oil, with derivatives (Bbl) (b)
$
53.79
$
50.81
$
52.35
$
52.73
Natural gas, without derivatives (Mcf)
$
1.88
$
2.82
$
1.74
$
3.40
Natural gas, with derivatives (Mcf)
(b)
$
2.12
$
2.63
$
1.86
$
3.37
Total, without derivatives (Boe)
$
40.17
$
37.78
$
38.00
$
43.25
Total, with derivatives (Boe) (b)
$
38.88
$
38.47
$
37.19
$
40.98
Operating costs and expenses per Boe:
(a)
Oil and natural gas production
$
5.29
$
6.15
$
5.93
$
6.14
Production and ad valorem taxes
$
3.04
$
2.71
$
2.89
$
3.19
Gathering, processing and
transportation
$
1.38
$
0.68
$
0.96
$
0.58
Depreciation, depletion and
amortization
$
17.20
$
15.74
$
16.25
$
15.41
General and administrative
$
2.33
$
3.20
$
2.69
$
3.25
(a)
Per unit and per Boe amounts calculated
using dollars and volumes rounded to thousands.
(b)
Includes the effect of net cash receipts
from (payments on) derivatives:
Three Months Ended December
31,
Years Ended December
31,
(in millions)
2019
2018
2019
2018
Net cash receipts from (payments on)
derivatives:
Oil derivatives
$
(57
)
$
32
$
(129
)
$
(213
)
Natural gas derivatives
16
(12
)
31
(5
)
Total
$
(41
)
$
20
$
(98
)
$
(218
)
The presentation of average prices with
derivatives is a result of including the net cash receipts from
(payments on) commodity derivatives that are presented in the
Company's consolidated statements of cash flows. This presentation
of average prices with derivatives is a means by which to reflect
the actual cash performance of the Company's commodity derivatives
for the respective periods and presents oil and natural gas prices
with derivatives in a manner consistent with the presentation
generally used by the investment community.
Concho Resources Inc.
Operational Activity
Unaudited
The tables below provide a summary of
operational activity for fourth-quarter and full-year 2019:
Total Activity (Gross):
Number of Wells
Drilled
Number of Wells
Completed
Number of Wells Put on
Production
4Q19
FY19
4Q19
FY19
4Q19
FY19
Delaware Basin
48
299
82
268
84
294
Midland Basin
35
155
42
171
33
185
Total
83
454
124
439
117
479
Total Activity (Gross
Operated):
Number of Wells
Drilled
Number of Wells
Completed
Number of Wells Put on
Production
4Q19
FY19
4Q19
FY19
4Q19
FY19
Delaware Basin
34
150
40
158
65
192
Midland Basin
33
130
29
136
21
145
Total
67
280
69
294
86
337
Total Activity (Net Operated):
Number of Wells
Drilled
Number of Wells
Completed
Number of Wells Put on
Production
4Q19
FY19
4Q19
FY19
4Q19
FY19
Delaware Basin
31
122
38
134
57
157
Midland Basin
26
104
23
112
20
123
Total
57
226
61
246
77
280
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,
2019, as well as the proved developed reserves balance at the
beginning and end of the year.
(MMBoe)
2019
Total proved reserves
Balance, January 1
1,187
Purchases of minerals-in-place
9
Sales of minerals-in-place
(105
)
Extensions and discoveries
177
Revisions
(145
)
Production
(121
)
Balance, December 31
1,002
Proved developed reserves
Balance, January 1
824
Balance, December 31
745
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 December
31,
Years Ended December
31,
(in millions)
2019
2018
2019
2018
Property acquisition costs:
Proved
$
8
$
10
$
8
$
4,136
Unproved
17
21
50
3,617
Exploration
328
529
1,637
1,588
Development
286
397
1,358
1,050
Total costs incurred
$
639
$
957
$
3,053
$
10,391
Concho Resources Inc.
Derivatives
Information
Unaudited
The table below provides data associated
with the Company’s derivatives at February 18, 2020, for the
periods indicated:
2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
2021
2022
Oil Price Swaps – WTI:
(a)
Volume (MBbl)
14,674
12,494
11,080
10,045
48,293
18,977
—
Price per Bbl
$
57.13
$
56.90
$
56.88
$
57.00
$
56.98
$
54.21
$
—
Oil Price Swaps – Brent:
(b)
Volume (MBbl)
2,578
2,031
1,768
1,503
7,880
—
—
Price per Bbl
$
60.78
$
60.33
$
60.29
$
60.14
$
60.43
$
—
$
—
Oil Basis Swaps: (c)
Volume (MBbl)
14,951
12,376
11,165
10,181
48,673
20,440
—
Price per Bbl
$
(0.43
)
$
(0.41
)
$
(0.57
)
$
(0.70
)
$
(0.52
)
$
0.68
$
—
Natural Gas Price Swaps - Henry Hub:
(d)
Volume (BBtu)
35,023
32,314
30,038
28,498
125,873
69,350
36,500
Price per MMBtu
$
2.46
$
2.46
$
2.47
$
2.47
$
2.47
$
2.44
$
2.38
Natural Gas Basis Swaps - HH/EPP:
(e)
Volume (BBtu)
25,770
23,960
22,080
21,770
93,580
51,100
29,200
Price per MMBtu
$
(1.06
)
$
(1.07
)
$
(1.07
)
$
(1.07
)
$
(1.07
)
$
(0.78
)
$
(0.72
)
Natural Gas Basis Swaps - HH/WAHA:
(f)
Volume (BBtu)
7,280
7,280
7,360
7,360
29,280
18,250
7,300
Price per MMBtu
$
(1.10
)
$
(1.10
)
$
(1.10
)
$
(1.10
)
$
(1.10
)
$
(0.92
)
$
(0.85
)
(a)
These oil derivative contracts are settled
based on the New York Mercantile Exchange (“NYMEX”) – West Texas
Intermediate (“WTI”) calendar-month average futures price.
(b)
These oil derivative contracts are settled
based on the Brent calendar-month average futures price.
(c)
The basis differential price is between
Midland – WTI and Cushing – WTI. These contracts are settled on a
calendar-month basis.
(d)
The natural gas derivative contracts are
settled based on the NYMEX – Henry Hub last trading day futures
price.
(e)
The basis differential price is between
NYMEX – Henry Hub and El Paso Permian.
(f)
The basis differential price is between
NYMEX – Henry Hub and WAHA.
Concho Resources Inc. Supplemental
Non-GAAP Financial Measures Unaudited
The Company reports its financial results in accordance with the
United States generally accepted accounting principles (GAAP).
However, the Company believes certain non-GAAP performance measures
may provide financial statement users with additional meaningful
comparisons between current results, the results of its peers and
the results of prior periods. In addition, the Company believes
these measures are used by analysts and others in the valuation,
rating and investment recommendations of companies within the oil
and natural gas exploration and production industry. See the
reconciliations throughout this release of GAAP financial measures
to non-GAAP financial measures for the periods indicated.
Reconciliation of Net Income (Loss) to Adjusted Net Income
and Adjusted Earnings per Share
The Company’s presentation of adjusted net income and adjusted
earnings per share that exclude the effect of certain items are
non-GAAP financial measures. Adjusted net income and adjusted
earnings per share represent earnings (loss) and diluted earnings
(loss) per share determined under GAAP without regard to certain
non-cash and special items. The Company believes these measures
provide useful information to analysts and investors for analysis
of its operating results on a recurring, comparable basis from
period to period. Adjusted net income and adjusted earnings per
share should not be considered in isolation or as a substitute for
earnings (loss) or diluted earnings (loss) per share as determined
in accordance with GAAP and may not be comparable to other
similarly titled measures of other companies.
The following table provides a reconciliation from the GAAP
measure of net income (loss) to adjusted net income, both in total
and on a per diluted share basis, for the periods indicated:
Three Months Ended December
31,
Years Ended December
31,
(in millions, except per share
amounts)
2019
2018
2019
2018
Net income (loss) - as reported
$
(471
)
$
1,513
$
(705
)
$
2,286
Adjustments for certain non-cash and
special items:
(Gain) loss on derivatives
450
(1,625
)
895
(832
)
Net cash received from (payments on)
derivatives
(41
)
20
(98
)
(218
)
Impairments of long-lived assets
2
—
890
—
Impairments of goodwill
201
—
282
—
Leasehold abandonments
88
15
147
35
(Gain) loss on disposition of assets and
other
133
(82
)
(456
)
(792
)
Gain on equity method investments
—
—
(17
)
(103
)
RSP transaction costs
—
—
—
32
Tax impact (a)
(136
)
380
(301
)
426
Changes in deferred taxes and other
estimates
(20
)
(32
)
(26
)
(42
)
Adjusted net income
$
206
$
189
$
611
$
792
Earnings (loss) per diluted share - as
reported
$
(2.38
)
$
7.55
$
(3.55
)
$
13.25
Adjustments for certain non-cash and
special items per diluted share:
(Gain) loss on derivatives
2.28
(8.11
)
4.50
(4.82
)
Net cash received from (payments on)
derivatives
(0.21
)
0.10
(0.49
)
(1.27
)
Impairments of long-lived assets
0.01
—
4.46
—
Impairments of goodwill
1.01
—
1.41
—
Leasehold abandonments
0.44
0.07
0.74
0.20
(Gain) loss on disposition of assets and
other
0.67
(0.40
)
(2.29
)
(4.59
)
Gain on equity method investments
—
—
(0.09
)
(0.60
)
RSP transaction costs
—
—
—
0.19
Tax impact
(0.69
)
1.89
(1.51
)
2.47
Changes in deferred taxes and other
estimates
(0.10
)
(0.16
)
(0.13
)
(0.24
)
Adjusted earnings per diluted
share
$
1.03
$
0.94
$
3.05
$
4.59
Adjusted earnings per share:
Basic earnings
$
1.03
$
0.94
$
3.05
$
4.60
Diluted earnings
$
1.03
$
0.94
$
3.05
$
4.59
(a) Estimated using statutory tax rate in
effect for the period.
Reconciliation of Net Income (Loss) to Adjusted
EBITDAX
Adjusted EBITDAX (as defined below) is presented herein and
reconciled from the GAAP measure of net income (loss) because of
its wide acceptance by the investment community as a financial
indicator.
The Company defines adjusted EBITDAX as net income (loss), plus
(1) exploration and abandonments, (2) depreciation, depletion and
amortization, (3) accretion of discount on asset retirement
obligations, (4) impairments of long-lived assets, (5) impairments
of goodwill, (6) non-cash stock-based compensation, (7) (gain) loss
on derivatives, (8) net cash receipts from (payments on)
derivatives, (9) (gain) loss on disposition of assets and other,
(10) interest expense, (11) gain on equity method investments, (12)
RSP transaction costs and (13) income tax expense (benefit).
Adjusted EBITDAX is not a measure of net income (loss) or cash
flows as determined by GAAP.
The Company’s adjusted EBITDAX measure provides additional
information that may be used to better understand the Company’s
operations. Adjusted EBITDAX is one of several metrics that the
Company uses as a supplemental financial measurement in the
evaluation of its business and should not be considered as an
alternative to, or more meaningful than, net income (loss) as an
indicator of operating performance. Certain items excluded from
adjusted EBITDAX are significant components in understanding and
assessing a company’s financial performance, such as a company’s
cost of capital and tax structure, as well as the historic cost of
depreciable and depletable assets. Adjusted EBITDAX, as used by the
Company, may not be comparable to similarly titled measures
reported by other companies. The Company believes that adjusted
EBITDAX is a widely followed measure of operating performance and
is one of many metrics used by the Company’s management team and by
other users of the Company’s consolidated financial statements. For
example, adjusted EBITDAX can be used to assess the Company’s
operating performance and return on capital in comparison to other
independent exploration and production companies without regard to
financial or capital structure, and to assess the financial
performance of the Company’s assets and the Company without regard
to capital structure or historical cost basis.
The following table provides a reconciliation of the GAAP
measure of net income (loss) to adjusted EBITDAX for the periods
indicated:
Three Months Ended December
31,
Years Ended December
31,
(in millions)
2019
2018
2019
2018
Net income (loss)
$
(471
)
$
1,513
$
(705
)
$
2,286
Exploration and abandonments
111
29
201
65
Depreciation, depletion and
amortization
533
445
1,964
1,478
Accretion of discount on asset retirement
obligations
2
3
10
10
Impairments of long-lived assets
2
—
890
—
Impairments of goodwill
201
—
282
—
Non-cash stock-based compensation
18
24
85
82
(Gain) loss on derivatives
450
(1,625
)
895
(832
)
Net cash receipts from (payments on)
derivatives
(41
)
20
(98
)
(218
)
(Gain) loss on disposition of assets and
other
133
(82
)
(456
)
(800
)
Interest expense
44
46
185
149
Gain on equity method investments
—
—
(17
)
(103
)
RSP transaction costs
—
—
—
32
Income tax expense (benefit)
(129
)
378
(154
)
603
Adjusted EBITDAX
$
853
$
751
$
3,082
$
2,752
Reconciliation of Net Cash Provided by Operating Activities
to Operating Cash Flow Before Working Capital Changes and to Free
Cash Flow
The Company provides Operating Cash Flow (OCF) before working
capital changes, which is a non-GAAP financial measure. OCF before
working capital changes represents net cash provided by operating
activities as determined under GAAP without regard to changes in
operating assets and liabilities, net of acquisitions and
dispositions as determined in accordance with GAAP. The Company
believes OCF before working capital changes is an accepted measure
of an oil and natural gas company’s ability to generate cash used
to fund development and acquisition activities and service debt or
pay dividends. Additionally, the Company provides free cash flow,
which is a non-GAAP financial measure. Free cash flow is cash flow
from operating activities before changes in working capital in
excess of exploration and development costs incurred. The Company
believes that free cash flow is useful to investors as it provides
measures to compare cash from operating activities and exploration
and development costs across periods on a consistent basis.
These non-GAAP measures should not be considered as alternatives
to, or more meaningful than, net cash provided by operating
activities as indicators of operating performance.
The following tables provide a reconciliation from the GAAP
measure of net cash provided by operating activities to OCF before
working capital changes and to free cash flow:
Three Months Ended December
31,
Years Ended December
31,
(in millions)
2019
2018
2019
2018
Net cash provided by operating
activities
$
769
$
697
$
2,836
$
2,558
Changes in cash due to changes in
operating assets and liabilities:
Accounts receivable
71
(22
)
90
35
Prepaid costs and other
1
(5
)
2
10
Inventory
1
—
(1
)
12
Accounts payable
13
(28
)
(3
)
(1
)
Revenue payable
(48
)
10
(28
)
(52
)
Other current liabilities
(6
)
44
(20
)
(8
)
Total working capital changes
32
(1
)
40
(4
)
Operating cash flow before working
capital changes
$
801
$
696
$
2,876
$
2,554
Three Months Ended December
31,
Years Ended December
31,
(in millions)
2019
2018
2019
2018
Operating cash flow before working
capital changes
$
801
$
696
$
2,876
$
2,554
Exploration and development costs
614
926
2,995
2,638
Free cash flow
$
187
$
(230
)
$
(119
)
$
(84
)
Concho Resources Inc.
2020 Guidance
The following table summarizes the
Company’s operational and financial guidance for 2020.
2020
Production growth, pro forma for New
Mexico Shelf asset sale
Total production growth
6% - 8%
Oil production growth
10% - 12%
Price realizations, excluding commodity
derivatives
Oil differential (per Bbl) (Excludes basis
differential)
($1.00) - ($2.00)
Natural gas (per Mcf) (% of NYMEX - Henry
Hub)
30% - 50%
Operating costs and expenses ($ per
Boe, unless noted)
Lease operating expense and workover
costs
$5.50 - $5.80
Gathering, processing and
transportation
$1.30 - $1.50
Oil & natural gas taxes (% of oil and
natural gas revenues)
8.10%
General and administrative ("G&A")
expense:
Cash G&A expense
$1.90 - $2.00
Non-cash stock-based compensation
$0.70 - $0.90
Depletion, depreciation and amortization
expense
$17.25 - $18.25
Cash exploration and other
$0.30 - $0.60
Interest expense ($ in millions):
$190
Income tax rate (%)
23% - 25%
Capital program ($ in billions)
$2.6 - $2.8
Gross Operated Activity
Drilled
280-300
Completed
300-320
Put on Production
280-300
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200218006064/en/
INVESTOR RELATIONS Megan P. Hays Vice President,
Investor Relations & Public Affairs 432.685.2533
MEDIA Mary T. Starnes Manager, Public Affairs
& Corporate Responsibility Strategy 432.221.0477
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