Delivers Strong Results for First-Quarter
2020
Further Reducing 2020 Capital Plans,
Reinforcing Strong Financial Position
Concho Resources Inc. (NYSE: CXO) today reported
financial and operating results for first-quarter 2020.
First-Quarter 2020 Highlights
- Delivered oil production volumes of 209 MBopd, exceeding the
high end of the Company’s guidance range.
- Generated cash flow from operating activities of $836 million.
Operating cash flow before working capital changes (non-GAAP) was
$744 million, exceeding capital expenditures of $556 million and
resulting in $188 million of free cash flow (non-GAAP).
- Included in the Company’s first-quarter 2020 results are $12.6
billion in impairment charges related to the substantial weakness
in commodity prices. As such, the Company reported a net loss of
$9.3 billion, or $47.49 per share.
- Adjusted net income (non-GAAP) totaled $142 million, or $0.72
per share.
- Generated $784 million of adjusted EBITDAX (non-GAAP).
- Returned capital to shareholders through the Company’s common
dividend of $0.20 per share, up 60% year over year, and $100
million of share repurchases.
2020 Outlook Update
- Further reducing planned capital expenditures to $1.6 billion,
representing a 40% decrease from the Company’s initial capital
spending expectations for the year.
- Targeting $100 million in operating and G&A cost
reductions.
- The Company expects production to remain relatively consistent
with 2019 divestiture-adjusted production volumes. The Company’s
production outlook includes current voluntary curtailments, but
does not include any potential future curtailments.
See “Supplemental Non-GAAP Financial Measures” below for
descriptions of the above non-GAAP measures as well as a
reconciliation of these measures to the associated GAAP (as defined
herein) measures.
Tim Leach, Chairman and Chief Executive Officer, commented,
“This is an extremely challenging environment, but our first
priority is the safety and well-being of our employees, business
partners and communities. Due to the hard work and dedication of
our team, we delivered strong operational and financial results for
the first quarter. The operating environment has changed
considerably since our last update, and we expect a sustained
period of low commodity prices. We are managing through the
volatility and uncertainty from a position of strength, which we
are focused on maintaining by aligning our operations with current
market realities. We are further reducing capital spending in 2020
and targeting $100 million in operating cost reductions. We expect
these actions will improve our capital efficiency and better
position Concho to deliver value over the long term.”
First-Quarter 2020 Summary
First-quarter 2020 oil production volumes totaled 209 thousand
barrels per day (MBopd), compared with 210 MBopd produced in the
same period a year ago. Natural gas production for first-quarter
2020 totaled 699 million cubic feet per day (MMcfpd). The Company’s
total production for first-quarter 2020 was 326 thousand barrels of
oil equivalent per day (MBoepd), compared with 328 MBoepd produced
in the same period a year ago.
Concho’s average realized price for oil and natural gas for
first-quarter 2020, excluding the effect of commodity derivatives,
was $45.85 per Bbl and $0.79 per Mcf, respectively.
Net loss for first-quarter 2020 was $9.3 billion, or $47.49 per
share. Special items impacting earnings for the quarter included
non-cash impairment charges primarily related to the Company’s
proved and unproved oil and natural gas assets and goodwill. These
impairment charges are due to the substantial weakness in equity
markets due to the COVID-19 pandemic and the substantial decline in
commodity prices. Excluding these and other special items, adjusted
net income (non-GAAP) for first-quarter 2020 was $142 million, or
$0.72 per share.
Continued Cost Performance; Further Improving Cost Structure in
2020
For first-quarter 2020, controllable costs totaled $8.68 per
Boe, representing an 11% decrease year over year and below the
Company’s full-year 2020 controllable cost target of $9.00 per Boe.
Controllable costs include production expenses (consisting of lease
operating and workover expenses), cash general and administrative
(G&A) expenses (which excludes non-cash stock-based
compensation) and interest expense.
Concho will continue focusing on improving its operating cost
structure and is targeting $100 million in reductions across
production expenses and cash G&A in 2020. These reductions
would enable the Company to hold controllable costs below $9.00 per
Boe despite current expectations for production volumes that are
lower than previously contemplated under the Company’s initial 2020
outlook.
Generated Strong Cash Flow
For first-quarter 2020, cash flow from operating activities was
$836 million, including $92 million in working capital changes.
Operating cash flow before working capital changes (non-GAAP) was
$744 million, exceeding first-quarter capital expenditures of $556
million. Capital expenditures refers to the Company’s additions to
oil and natural gas properties on the Company’s consolidated
statements of cash flows.
During January 2020, the Company repurchased approximately 1.1
million shares for $100 million. Since initiating the repurchase
program in fourth-quarter 2019, the Company has repurchased
approximately 4.4 million shares for $350 million, which represents
approximately 40% of the proceeds from the Company’s New Mexico
Shelf sale.
Significant Financial Flexibility
Concho maintains a strong financial position with
investment-grade credit ratings and substantial liquidity. At March
31, 2020, Concho had long-term debt of $4 billion, with no
outstanding debt maturities until January 2025 and no debt
outstanding under its credit facility. Additionally, at March 31,
2020, the Company had cash of $165 million and approximately $2.2
billion of liquidity.
Hedge Position Mitigates Cash Flow Volatility
The Company’s commodity derivatives strategy mitigates Concho’s
exposure to commodity price fluctuations. For the remainder of
2020, Concho has crude oil swap contracts covering approximately
138 MBopd and 25 MBopd at weighted average prices of $54 per Bbl
WTI and $54 per Bbl Brent, respectively. Additionally, the Company
has approximately 140 MBopd of Midland-Cushing oil basis swaps at a
weighted average price of $(0.64) per Bbl, which mitigates exposure
to field-level pricing weakness. At March 31, 2020, Concho had a
net derivative asset of approximately $1.5 billion.
Please see the table under “Derivatives Information” below for
detailed information about Concho’s current derivatives
positions.
Further Reducing 2020 Capital Program
Concho continues to prudently and dynamically manage its capital
program in response to challenging macroeconomic conditions, the
severe decline in commodity prices and reduced demand for oil and
natural gas. The Company is further reducing 2020 capital
expenditures to approximately $1.6 billion, which represents a 40%
decrease from the Company’s initial 2020 capital guidance. For the
remainder of 2020, Concho expects to average approximately 8 rigs
and complete approximately 110 to 130 gross operated wells. This
level of investment under current market conditions:
- Reinforces one of the sector’s strongest balance sheets;
- Generates substantial free cash flow in 2020;
- Maintains the Company’s commitment to returning capital to
shareholders; and
- Preserves the Company’s operational capacity and development
opportunities, which the Company can execute in a more conducive
investment environment.
The Company expects full-year 2020 oil production to be
approximately flat with 2019 divestiture-adjusted oil production
volumes of 197 MBopd. The Company’s production guidance reflects
voluntarily curtailed volumes, which are primarily associated with
low-margin vertical wells. However, Concho’s production guidance
does not reflect incremental curtailments that may arise as a
result of further deteriorating crude oil supply and demand
fundamentals or economic conditions, including field-level
commodity prices. Additionally, given the unique and challenging
operating environment, the Company is withholding detailed
quarterly and annual guidance.
First-Quarter 2020 Conference Call
Concho will host a conference call tomorrow, May 1, 2020, at
8:00 AM CT (9:00 AM ET) to discuss first-quarter 2020 results. The
telephone number and passcode to access the conference call are
provided below:
Dial-in: (844) 263-8298
Intl. dial-in: (478) 219-0007
Participant Passcode: 7526676
To access the live webcast and view the related earnings
presentation, visit Concho’s website at www.concho.com. The
replay will also be available on the Company’s website under the
“Investors” section.
About Concho Resources
Concho Resources (NYSE: CXO) is one of the largest
unconventional shale producers in the Permian Basin, with
operations focused on safely and efficiently developing and
producing oil and natural gas resources. We are working today to
deliver a better tomorrow for our shareholders, people and
communities. For more information about Concho, visit
www.concho.com.
Forward-Looking Statements and Cautionary Statements
The foregoing contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements, other than statements of historical fact, included
in this press release that address activities, events or
developments that the Company expects, believes or anticipates will
or may occur in the future are forward-looking statements. The
words “estimate,” “project,” “predict,” “believe,” “expect,”
“anticipate,” “potential,” “could,” “may,” “enable,” “strategy,”
“intend," “positioned,” “foresee,” “plan,” “will,” “guidance,”
“outlook,” “goal,” "target" or other similar expressions that
convey the uncertainty of future events or outcomes are intended to
identify forward-looking statements, which generally are not
historical in nature. However, the absence of these words does not
mean that the statements are not forward-looking. These statements
are based on certain assumptions and analyses made by the Company
based on management’s experience, expectations and perception of
historical trends, current conditions, current plans, anticipated
future developments, expected financings, the impact of the
COVID-19 pandemic and other factors believed to be appropriate.
Forward-looking statements are not guarantees of performance.
Although the Company believes the expectations reflected in its
forward-looking statements are reasonable and are based on
reasonable assumptions, no assurance can be given that these
assumptions are accurate or that any of these expectations will be
achieved (in full or at all) or will prove to have been correct.
Moreover, such statements are subject to a number of assumptions,
risks and uncertainties, many of which are beyond the control of
the Company, which may cause actual results to differ materially
from those implied or expressed by the forward-looking statements.
These include the risk factors and other information discussed or
referenced in the Company’s most recent Annual Report on Form 10-K
and other filings with the Securities and Exchange Commission. In
particular, the unprecedented nature of the current economic
downturn, pandemic and industry decline may make it particularly
difficult to identify risks or predict the degree to which
identified risks will impact the Company’s business and financial
condition. Any forward-looking statement speaks only as of the date
on which such statement is made, and the Company undertakes no
obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as required by applicable law. Information on Concho’s
website is not part of this press release.
Use of Non-GAAP Financial Measures
To supplement the presentation of the Company’s financial
results prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”), this press release contains certain
financial measures that are not prepared in accordance with GAAP,
including adjusted net income, adjusted earnings per share,
adjusted EBITDAX, operating cash flow before working capital
changes and free cash flow.
See “Supplemental Non-GAAP Financial Measures” below for a
description and reconciliation of each non-GAAP measure presented
in this press release to the most directly comparable financial
measure calculated in accordance with GAAP.
Concho Resources Inc.
Consolidated Balance
Sheets
Unaudited
(in millions, except share and per
share amounts)
March 31, 2020
December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$
165
$
70
Accounts receivable, net:
Oil and natural gas
472
584
Joint operations and other
298
304
Inventory
25
30
Derivative instruments
1,241
6
Prepaid costs and other
59
61
Total current assets
2,260
1,055
Property and equipment:
Oil and natural gas properties, successful
efforts method
26,644
28,785
Accumulated depletion and depreciation
(16,182
)
(7,895
)
Total oil and natural gas properties,
net
10,462
20,890
Other property and equipment, net
449
437
Total property and equipment, net
10,911
21,327
Deferred loan costs, net
6
7
Goodwill
—
1,917
Intangible assets, net
17
17
Noncurrent derivative instruments
225
11
Other assets
195
398
Total assets
$
13,614
$
24,732
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable - trade
$
80
$
53
Revenue payable
260
268
Accrued drilling costs
382
386
Derivative instruments
—
112
Other current liabilities
324
363
Total current liabilities
1,046
1,182
Long-term debt
3,956
3,955
Deferred income taxes
87
1,654
Noncurrent derivative instruments
—
7
Asset retirement obligations and other
long-term liabilities
146
152
Stockholders’ equity:
Common stock, $0.001 par value;
300,000,000 authorized; 197,930,291 and 198,863,681 shares issued
at March 31, 2020 and December 31, 2019, respectively
—
—
Additional paid-in capital
14,526
14,608
Retained earnings (accumulated
deficit)
(5,997
)
3,320
Treasury stock, at cost; 1,225,682 and
1,175,026 shares at March 31, 2020 and December 31, 2019,
respectively
(150
)
(146
)
Total stockholders’ equity
8,379
17,782
Total liabilities and stockholders’
equity
$
13,614
$
24,732
Concho Resources Inc.
Consolidated Statements of
Operations
Unaudited
Three Months Ended March
31,
(in millions, except per share
amounts)
2020
2019
Operating revenues:
Oil sales
$
872
$
935
Natural gas sales
50
169
Total operating revenues
922
1,104
Operating costs and expenses:
Oil and natural gas production
164
174
Production and ad valorem taxes
74
86
Gathering, processing and
transportation
50
26
Exploration and abandonments
2,719
47
Depreciation, depletion and
amortization
524
465
Accretion of discount on asset retirement
obligations
2
3
Impairments of long-lived assets
7,772
—
Impairments of goodwill
1,917
—
General and administrative (including
non-cash stock-based compensation of $18 and $24 for the three
months ended March 31, 2020 and 2019, respectively)
69
91
(Gain) loss on derivatives
(1,769
)
1,059
(Gain) loss on disposition of assets,
net
5
(1
)
Transaction costs
2
—
Total operating costs and expenses
11,529
1,950
Loss from operations
(10,607
)
(846
)
Other income (expense):
Interest expense
(42
)
(47
)
Other, net
(195
)
4
Total other expense
(237
)
(43
)
Loss before income taxes
(10,844
)
(889
)
Income tax benefit
1,567
194
Net loss
$
(9,277
)
$
(695
)
Earnings per share:
Basic net loss
$
(47.49
)
$
(3.49
)
Diluted net loss
$
(47.49
)
$
(3.49
)
Concho Resources Inc.
Earnings per Share
Unaudited
The Company uses the two-class method of calculating earnings
per share because certain of the Company’s unvested share-based
awards qualify as participating securities.
The Company’s basic earnings (loss) per share attributable to
common stockholders is computed as (i) net income (loss) as
reported, (ii) less participating basic earnings (iii) divided by
weighted average basic common shares outstanding. The Company’s
diluted earnings (loss) per share attributable to common
stockholders is computed as (i) basic earnings (loss) attributable
to common stockholders, (ii) plus reallocation of participating
earnings (iii) divided by weighted average diluted common shares
outstanding.
The following table reconciles the Company’s loss from
operations and loss attributable to common stockholders to the
basic and diluted loss used to determine the Company’s loss per
share amounts for the periods indicated under the two-class
method:
Three Months Ended March
31,
(in millions)
2020
2019
Net loss as reported
$
(9,277
)
$
(695
)
Participating basic earnings (a)
—
—
Basic loss attributable to common
stockholders
(9,277
)
(695
)
Reallocation of participating earnings
—
—
Diluted loss attributable to common
stockholders
$
(9,277
)
$
(695
)
(a) Unvested restricted stock awards
represent participating securities because they participate in
nonforfeitable dividends or distributions with the common equity
holders of the Company. Participating earnings represent the
distributed and undistributed earnings of the Company attributable
to the participating securities. Unvested restricted stock awards
do not participate in undistributed net losses as they are not
contractually obligated to do so.
The following table is a reconciliation of the basic weighted
average common shares outstanding to diluted weighted average
common shares outstanding for the periods indicated:
Three Months Ended March
31,
(in thousands)
2020
2019
Weighted average common shares
outstanding:
Basic
195,326
199,148
Dilutive performance units
—
—
Diluted
195,326
199,148
Concho Resources Inc.
Consolidated Statements of
Cash Flows
Unaudited
Three Months Ended March
31,
(in millions)
2020
2019
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$
(9,277
)
$
(695
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation, depletion and
amortization
524
465
Accretion of discount on asset retirement
obligations
2
3
Impairments of long-lived assets
7,772
—
Impairments of goodwill
1,917
—
Exploration and abandonments
2,713
38
Non-cash stock-based compensation
expense
18
24
Deferred income taxes
(1,567
)
(194
)
Net (gain) loss on disposition of assets
and other non-operating items
5
(1
)
(Gain) loss on derivatives
(1,769
)
1,059
Net settlements received from
derivatives
201
—
Other
205
2
Changes in operating assets and
liabilities, net of acquisitions and dispositions:
Accounts receivable
122
(111
)
Prepaid costs and other
2
9
Inventory
5
—
Accounts payable
27
11
Revenue payable
(8
)
8
Other current liabilities
(56
)
5
Net cash provided by operating
activities
836
623
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to oil and natural gas
properties
(556
)
(918
)
Changes in working capital associated with
oil and natural gas property additions
(1
)
33
Acquisitions of oil and natural gas
properties
(20
)
(5
)
Additions to property, equipment and other
assets
(19
)
(15
)
Proceeds from the disposition of
assets
—
5
Direct transaction costs for asset
acquisitions and dispositions
—
(2
)
Net cash used in investing activities
(596
)
(902
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under credit facility
345
1,112
Payments on credit facility
(345
)
(739
)
Payment of common stock dividends
(39
)
(25
)
Purchases of treasury stock
(4
)
(13
)
Purchases of common stock under share
repurchase program
(100
)
—
Decrease in book overdrafts
—
(54
)
Other
(2
)
(2
)
Net cash provided by (used in) financing
activities
(145
)
279
Net increase in cash and cash
equivalents
95
—
Cash and cash equivalents at beginning of
period
70
—
Cash and cash equivalents at end of
period
$
165
$
—
Concho Resources Inc.
Summary Production and Price
Data
Unaudited
The following table sets forth summary
information concerning production and operating data for the
periods indicated:
Three Months Ended March
31,
2020
2019
Production and operating data:
Net production volumes:
Oil (MBbl)
19,020
18,936
Natural gas (MMcf)
63,652
63,769
Total (MBoe)
29,629
29,564
Average daily production
volumes:
Oil (MBbl)
209
210
Natural gas (MMcf)
699
709
Total (MBoe)
326
328
Average prices per unit: (a)
Oil, without derivatives (Bbl)
$
45.85
$
49.39
Oil, with derivatives (Bbl) (b)
$
54.88
$
49.56
Natural gas, without derivatives (Mcf)
$
0.79
$
2.64
Natural gas, with derivatives (Mcf)
(b)
$
1.25
$
2.59
Total, without derivatives (Boe)
$
31.13
$
37.33
Total, with derivatives (Boe) (b)
$
37.91
$
37.34
Operating costs and expenses per Boe:
(a)
Oil and natural gas production
$
5.54
$
5.87
Production and ad valorem taxes
$
2.51
$
2.92
Gathering, processing and
transportation
$
1.68
$
0.88
Depreciation, depletion and
amortization
$
17.68
$
15.74
General and administrative
$
2.36
$
3.08
(a)
Per unit and per Boe amounts calculated
using dollars and volumes rounded to thousands.
(b)
Includes the effect of net cash receipts
from (payments on) derivatives:
Three Months Ended March
31,
(in millions)
2020
2019
Net cash receipts from (payments on)
derivatives:
Oil derivatives
$
172
$
3
Natural gas derivatives
29
(3
)
Total
$
201
$
—
The presentation of average prices with
derivatives is a result of including the net cash receipts from
(payments on) commodity derivatives that are presented in the
Company's consolidated statements of cash flows. This presentation
of average prices with derivatives is a means by which to reflect
the actual cash performance of the Company's commodity derivatives
for the respective periods and presents oil and natural gas prices
with derivatives in a manner consistent with the presentation
generally used by the investment community.
Concho Resources Inc.
Operational Activity
Unaudited
The tables below provide a summary of
operational activity for first-quarter 2020:
Total Activity (Gross):
Number of Wells
Drilled
Number of Wells
Completed
Number of Wells Put on
Production
Delaware Basin
60
64
58
Midland Basin
29
35
32
Total
89
99
90
Total Activity (Gross
Operated):
Number of Wells
Drilled
Number of Wells
Completed
Number of Wells Put on
Production
Delaware Basin
36
46
33
Midland Basin
29
35
30
Total
65
81
63
Total Activity (Net Operated):
Number of Wells
Drilled
Number of Wells
Completed
Number of Wells Put on
Production
Delaware Basin
27
40
27
Midland Basin
25
23
20
Total
52
63
47
Concho Resources Inc.
Costs Incurred
Unaudited
The table below provides the costs
incurred for oil and natural gas producing activities for the
periods indicated:
Three Months Ended March
31,
(in millions)
2020
2019
Property acquisition costs:
Proved
$
7
$
—
Unproved
5
4
Exploration
297
462
Development
270
464
Total costs incurred
$
579
$
930
Concho Resources Inc.
Derivatives
Information
Unaudited
The table below provides data associated
with the Company’s derivatives at April 30, 2020, for the periods
indicated:
2020
Second Quarter
Third Quarter
Fourth Quarter
Total
2021
2022
Oil Price Swaps – WTI:
(a)
Volume (MBbl)
14,559
12,634
10,781
37,974
30,657
730
Price per Bbl
$
53.27
$
54.10
$
55.53
$
54.19
$
47.42
$
38.68
Oil Price Swaps – Brent:
(b)
Volume (MBbl)
2,031
2,415
2,477
6,923
—
—
Price per Bbl
$
60.33
$
52.33
$
49.11
$
53.52
$
—
$
—
Oil Basis Swaps: (c)
Volume (MBbl)
14,498
12,688
11,192
38,378
30,657
—
Price per Bbl
$
(0.63
)
$
(0.60
)
$
(0.69
)
$
(0.64
)
$
0.50
$
—
Natural Gas Price Swaps – Henry
Hub: (d)
Volume (BBtu)
32,314
31,868
31,258
95,440
86,680
36,500
Price per MMBtu
$
2.46
$
2.47
$
2.48
$
2.47
$
2.49
$
2.38
Natural Gas Basis Swaps –
HH/EPP: (e)
Volume (BBtu)
23,960
23,300
23,610
70,870
62,050
36,500
Price per MMBtu
$
(1.07
)
$
(1.03
)
$
(1.02
)
$
(1.04
)
$
(0.75
)
$
(0.72
)
Natural Gas Basis Swaps –
HH/WAHA: (f)
Volume (BBtu)
7,280
7,970
8,280
23,530
18,250
7,300
Price per MMBtu
$
(1.10
)
$
(1.05
)
$
(1.03
)
$
(1.06
)
$
(0.92
)
$
(0.85
)
(a)
These oil derivative contracts are settled
based on the New York Mercantile Exchange (“NYMEX”) – West Texas
Intermediate (“WTI”) calendar-month average futures price.
(b)
These oil derivative contracts are settled
based on the Brent calendar-month average futures price.
(c)
The basis differential price is between
Midland – WTI and Cushing – WTI. These contracts are settled on a
calendar-month basis.
(d)
The natural gas derivative contracts are
settled based on the NYMEX – Henry Hub last trading day futures
price.
(e)
The basis differential price is between
NYMEX – Henry Hub and El Paso Permian.
(f)
The basis differential price is between
NYMEX – Henry Hub and WAHA.
Concho Resources Inc.
Supplemental Non-GAAP Financial
Measures
Unaudited
The Company reports its financial results in accordance with the
United States generally accepted accounting principles (GAAP).
However, the Company believes certain non-GAAP performance measures
may provide financial statement users with additional meaningful
comparisons between current results, the results of its peers and
the results of prior periods. In addition, the Company believes
these measures are used by analysts and others in the valuation,
rating and investment recommendations of companies within the oil
and natural gas exploration and production industry. See the
reconciliations throughout this release of GAAP financial measures
to non-GAAP financial measures for the periods indicated.
Reconciliation of Net Loss to Adjusted Net Income and
Adjusted Earnings per Share
The Company’s presentation of adjusted net income and adjusted
earnings per share that exclude the effect of certain items are
non-GAAP financial measures. Adjusted net income and adjusted
earnings per share represent earnings (loss) and diluted earnings
(loss) per share determined under GAAP without regard to certain
non-cash and special items. The Company believes these measures
provide useful information to analysts and investors for analysis
of its operating results on a recurring, comparable basis from
period to period. Adjusted net income and adjusted earnings per
share should not be considered in isolation or as a substitute for
earnings (loss) or diluted earnings (loss) per share as determined
in accordance with GAAP and may not be comparable to other
similarly titled measures of other companies.
The following table provides a reconciliation from the GAAP
measure of net loss to adjusted net income, both in total and on a
per diluted share basis, for the periods indicated:
Three Months Ended March
31,
(in millions, except per share
amounts)
2020
2019
Net loss - as reported
$
(9,277
)
$
(695
)
Adjustments for certain non-cash and
special items:
(Gain) loss on derivatives
(1,769
)
1,059
Net cash received from derivatives
201
—
Impairments of long-lived assets
7,772
—
Impairments of goodwill
1,917
—
Unproved impairments and leasehold
abandonments
2,713
30
(Gain) loss on disposition of assets and
other
6
(1
)
Loss on equity method investments
196
—
Tax impact (a)
(2,052
)
(247
)
Changes in deferred taxes and other
estimates
435
(2
)
Adjusted net income
$
142
$
144
Loss per diluted share - as
reported
$
(47.49
)
$
(3.49
)
Adjustments for certain non-cash and
special items per diluted share:
(Gain) loss on derivatives
(9.05
)
5.31
Net cash received from derivatives
1.03
—
Impairments of long-lived assets
39.77
—
Impairments of goodwill
9.81
—
Unproved impairments and leasehold
abandonments
13.89
0.16
(Gain) loss on disposition of assets and
other
0.03
(0.01
)
Loss on equity method investments
1.00
—
Tax impact
(10.50
)
(1.24
)
Changes in deferred taxes and other
estimates
2.23
(0.01
)
Adjusted earnings per diluted
share
$
0.72
$
0.72
Adjusted earnings per share:
Basic earnings
$
0.72
$
0.72
Diluted earnings
$
0.72
$
0.72
(a) Estimated using statutory tax rate in
effect for the period.
Reconciliation of Net Loss to Adjusted EBITDAX
Adjusted EBITDAX (as defined below) is presented herein and
reconciled from the GAAP measure of net income (loss) because of
its wide acceptance by the investment community as a financial
indicator.
The Company defines adjusted EBITDAX as net loss, plus (1)
exploration and abandonments, (2) depreciation, depletion and
amortization, (3) accretion of discount on asset retirement
obligations, (4) impairments of long-lived assets, (5) impairments
of goodwill, (6) non-cash stock-based compensation, (7) (gain) loss
on derivatives, (8) net cash received from derivatives, (9) (gain)
loss on disposition of assets and other, (10) interest expense,
(11) loss on equity method investments and (12) income tax benefit.
Adjusted EBITDAX is not a measure of net income (loss) or cash
flows as determined by GAAP.
The Company’s adjusted EBITDAX measure provides additional
information that may be used to better understand the Company’s
operations. Adjusted EBITDAX is one of several metrics that the
Company uses as a supplemental financial measurement in the
evaluation of its business and should not be considered as an
alternative to, or more meaningful than, net income (loss) as an
indicator of operating performance. Certain items excluded from
adjusted EBITDAX are significant components in understanding and
assessing a company’s financial performance, such as a company’s
cost of capital and tax structure, as well as the historic cost of
depreciable and depletable assets. Adjusted EBITDAX, as used by the
Company, may not be comparable to similarly titled measures
reported by other companies. The Company believes that adjusted
EBITDAX is a widely followed measure of operating performance and
is one of many metrics used by the Company’s management team and by
other users of the Company’s consolidated financial statements. For
example, adjusted EBITDAX can be used to assess the Company’s
operating performance and return on capital in comparison to other
independent exploration and production companies without regard to
financial or capital structure, and to assess the financial
performance of the Company’s assets and the Company without regard
to capital structure or historical cost basis.
The following table provides a reconciliation of the GAAP
measure of net loss to adjusted EBITDAX for the periods
indicated:
Three Months Ended March
31,
(in millions)
2020
2019
Net loss
$
(9,277
)
$
(695
)
Exploration and abandonments
2,719
47
Depreciation, depletion and
amortization
524
465
Accretion of discount on asset retirement
obligations
2
3
Impairments of long-lived assets
7,772
—
Impairments of goodwill
1,917
—
Non-cash stock-based compensation
18
24
(Gain) loss on derivatives
(1,769
)
1,059
Net cash received from derivatives
201
—
(Gain) loss on disposition of assets and
other
6
(1
)
Interest expense
42
47
Loss on equity method investments
196
—
Income tax benefit
(1,567
)
(194
)
Adjusted EBITDAX
$
784
$
755
Reconciliation of Net Cash Provided by Operating Activities
to Operating Cash Flow ("OCF") Before Working Capital Changes and
to Free Cash Flow
The Company provides OCF before working capital changes, which
is a non-GAAP financial measure. OCF before working capital changes
represents net cash provided by operating activities as determined
under GAAP without regard to changes in operating assets and
liabilities, net of acquisitions and dispositions as determined in
accordance with GAAP. The Company believes OCF before working
capital changes is an accepted measure of an oil and natural gas
company’s ability to generate cash used to fund development and
acquisition activities and service debt or pay dividends.
Additionally, the Company provides free cash flow, which is a
non-GAAP financial measure. Free cash flow is cash flow from
operating activities before changes in working capital in excess of
additions to oil and natural gas properties. The Company believes
that free cash flow is useful to investors as it provides a measure
to compare both cash flow from operating activities and additions
to oil and natural gas properties across periods on a consistent
basis.
The Company previously defined free cash flow as cash flow from
operating activities before changes in working capital in excess of
exploration and development costs incurred. Exploration and
development costs incurred include those costs that are capitalized
or charged to expense such as geological and geophysical costs and
capitalized asset retirement costs. The Company’s new calculation
better aligns with the way its industry peers compute free cash
flow and can be derived directly from line items appearing on the
Company’s statement of cash flows.
These non-GAAP measures should not be considered as alternatives
to, or more meaningful than, net cash provided by operating
activities as an indicator of operating performance.
The following tables provide a reconciliation from the GAAP
measure of net cash provided by operating activities to OCF before
working capital changes and to free cash flow:
Three Months Ended March
31,
(in millions)
2020
2019
Net cash provided by operating
activities
$
836
$
623
Changes in cash due to changes in
operating assets and liabilities:
Accounts receivable
(122
)
111
Prepaid costs and other
(2
)
(9
)
Inventory
(5
)
—
Accounts payable
(27
)
(11
)
Revenue payable
8
(8
)
Other current liabilities
56
(5
)
Total working capital changes
(92
)
78
Operating cash flow before working
capital changes
$
744
$
701
Three Months Ended March
31,
(in millions)
2020
2019
Operating cash flow before working
capital changes
$
744
$
701
Additions to oil and natural gas
properties
(556
)
(918
)
Free cash flow
$
188
$
(217
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200430005957/en/
INVESTOR RELATIONS Megan P. Hays Vice President of
Investor Relations & Public Affairs 432.685.2533 MEDIA
Mary T. Starnes Manager of Public Affairs & Corporate
Responsibility Strategy 432.221.0477
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