Concho Resources Inc. CXO (“Concho” or the “Company”) today reported financial and operating results for the three and nine months ended September 30, 2012. Highlights for the three and nine months ended September 30, 2012 include:
- Production of 7.8 million barrels of oil equivalent (“MMBoe”) for the third quarter of 2012, a 24% increase over the third quarter of 2011 and a 14% increase over the second quarter of 2012
- Net income of $6.0 million, or $0.06 per diluted share, for the third quarter of 2012, as compared to net income of $356.2 million, or $3.44 per diluted share, in the third quarter of 2011
- Adjusted net income1 (non-GAAP) of $99.8 million, or $0.96 per diluted share, for the third quarter of 2012, as compared to $117.8 million, or $1.14 per diluted share, for the third quarter of 2011
- EBITDAX2 (non-GAAP) of $387.2 million for the third quarter of 2012, an 11% increase over the third quarter of 2011
1 Adjusted net income (non-GAAP) is comparable to securities analyst estimates. For an explanation of how we calculate adjusted net income (non-GAAP) and a reconciliation of net income (GAAP) to adjusted net income (non-GAAP), please see "Supplemental Non-GAAP Financial Measures" below.
2 For an explanation of how we calculate and use EBITDAX (non-GAAP) and a reconciliation of net income (GAAP) to EBITDAX (non-GAAP), please see "Supplemental Non-GAAP Financial Measures" below.
Third Quarter 2012 Financial Results
Production for the third quarter of 2012 totaled 7.8 MMBoe (4.6 million barrels of oil (“MMBbls”) and 19.1 billion cubic feet of natural gas (“Bcf”)), an increase of 24% as compared to 6.3 MMBoe (3.9 MMBbls and 14.7 Bcf) produced in the third quarter of 2011.
Tim Leach, Concho's Chairman, CEO and President, commented, “The third quarter was another record quarter in terms of production and cash flow. It also marked a shift for Concho to a drilling program that is now primarily horizontal. The operational and capital efficiencies realized through our horizontal program are real and have expanded our access to new high rate-of-return drilling opportunities. Nowhere is this more evident than in the Delaware Basin, where our results continue to improve. Looking forward to 2013, we are planning to allocate over half of our capital budget to the Delaware Basin and expect this core area to provide a significant source of organic growth. Lastly, we have signed a definitive agreement to sell non-core assets, which will help streamline our business and reduce our overall leverage.”
For the third quarter of 2012, the Company reported net income of $6.0 million, or $0.06 per diluted share, as compared to net income of $356.2 million, or $3.44 per diluted share, for the third quarter of 2011. The Company's third quarter 2012 results were impacted by several non-cash items including: (1) a $151.6 million unrealized mark-to-market loss on commodity derivatives and (2) $0.7 million of leasehold abandonments. Excluding these items and their tax effects, the third quarter 2012 adjusted net income (non-GAAP) was $99.8 million, or $0.96 per diluted share. Excluding similar non-cash items and their tax impact, adjusted net income (non-GAAP) for the third quarter of 2011 was $117.8 million, or $1.14 per diluted share. For a description and a reconciliation of net income (GAAP) to adjusted net income (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below.
EBITDAX was $387.2 million in the third quarter of 2012, an increase of 11% from $349.6 million reported in the third quarter of 2011. For a description and a reconciliation of net income (GAAP) to EBITDAX (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below.
Oil and natural gas sales for the third quarter of 2012 increased 9% when compared to the third quarter of 2011. This increase was attributable to a 3% increase in the Company's unhedged realized oil price and a 24% increase in production in the third quarter of 2012 compared to the third quarter of 2011, which was partially offset by a 43% decrease in the Company's unhedged realized natural gas price.
Oil and natural gas production expense for the third quarter of 2012, including oil and natural gas taxes, totaled $96.7 million, or $12.39 per barrel of oil equivalent (“Boe”), a 7% decrease per Boe from the third quarter of 2011. This decrease was due primarily to lower lease operating expenses and workover costs, which averaged $7.15 per Boe in the third quarter of 2012 as compared to $7.42 per Boe in the third quarter of 2011 and to lower oil and natural gas taxes, which averaged $5.24 per Boe in the third quarter of 2012 as compared to $5.90 per Boe in the third quarter of 2011. The decrease in lease operating expenses per Boe over the third quarter 2011 is primarily due to the third quarter of 2011 including the effects of a $1.50 per Boe of costs from prior periods.
Depreciation, depletion and amortization expense (“DD&A”) for the third quarter of 2012 totaled $157.6 million, or $20.19 per Boe, a 10% increase per Boe from the third quarter of 2011.
General and administrative expense (“G&A”) for the third quarter of 2012 totaled $34.9 million, or $4.47 per Boe, as compared to $22.9 million, or $3.62 per Boe, in the third quarter of 2011. Cash G&A for the third quarter of 2012 totaled $26.9 million and stock-based compensation (non-cash) totaled $8.0 million. The increase in per Boe expense for the third quarter of 2012 over the third quarter of 2011 was primarily due to a 52% increase in absolute G&A expenses reflecting increased staffing across the Company, and was partially offset by a 24% increase in production.
The Company's cash flow from operating activities (GAAP) was $845.6 million for the first nine months of 2012, as compared to $779.0 million for the first nine months of 2011, an increase of 9%. Adjusted cash flows (non-GAAP), which are cash flows from operating activities (GAAP) adjusted for settlements paid on derivatives not designated as hedges, were $838.2 million for the first nine months of 2012, as compared to $701.2 million for the first nine months of 2011, an increase of 20%. For a description of the use of adjusted cash flows (non-GAAP) and for a reconciliation of cash flows from operating activities (GAAP) to adjusted cash flows (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below.
In the third quarter of 2012, the Company collected net cash receipts on derivatives not designated as hedges of $16.1 million and the non-cash unrealized mark-to-market loss on derivatives not designated as hedges was $151.6 million. In comparison, the Company made net cash payments of $1.8 million on derivatives not designated as hedges and reported a $387.0 million non-cash unrealized mark-to-market gain on derivatives not designated as hedges in the third quarter of 2011. To better understand the impact of the Company's derivative positions and their impact on the statements of operations, please see the “Summary Production and Operating Data” and “Derivatives Information” tables at the end of this press release.
Operations
For the quarter ended September 30, 2012, the Company commenced the drilling of or participated in a total of 213 gross wells (164 operated), 55 of which had been completed as producers, 156 of which were in progress at September 30, 2012 and 2 of which were plugged and abandoned. In addition, during the third quarter of 2012, the Company completed 133 wells that were drilled prior to the third quarter of 2012.
Currently, the Company is operating 28 drilling rigs; 5 of these rigs are drilling Yeso wells on the New Mexico Shelf, 13 are drilling in the Texas Permian and 10 are drilling in the Delaware Basin. Included in the 28 operated rigs, the Company is currently running 14 horizontal drilling rigs, including 10 in the Delaware Basin, 1 in the Texas Permian and 3 on the New Mexico Shelf.
New Mexico Shelf
During the third quarter of 2012, the Company drilled or participated in 88 wells (59 operated) on its New Mexico Shelf assets, which included both Yeso and Lower Abo wells, with a 100% success rate on the 19 wells that had been completed by September 30, 2012. In addition, during the third quarter of 2012, the Company completed 44 wells that were drilled prior to the third quarter of 2012.
Texas Permian
During the third quarter of 2012, the Company drilled or participated in 83 wells (83 operated) on its Texas Permian assets with a 100% success rate on the 30 wells that had been completed by September 30, 2012. In addition, during the third quarter of 2012, the Company completed 58 wells that were drilled prior to the third quarter of 2012.
Delaware Basin
During the third quarter of 2012, the Company drilled or participated in 42 wells (22 operated) with a 100% success rate on the 6 wells that had been completed by September 30, 2012. Of the 42 wells drilled, all were horizontal, which included 27 Bone Spring sand wells, 6 Avalon shale wells, 6 Wolfcamp shale wells and 3 Delaware sands wells. In addition, during the third quarter of 2012, the Company completed 31 wells that were drilled prior to the third quarter of 2012. The Company's net production in the third quarter of 2012 from horizontal Delaware Basin wells averaged approximately 16,000 barrels of oil equivalent per day (“Boepd”), an increase of 15% over the second quarter of 2012 and an 80% increase over the third quarter of 2011.
Non-Core Asset Sale
The Company today announced that it has signed a definitive agreement with Legacy Reserves LP LGCY to sell certain non-core properties located primarily in the Permian Basin of West Texas and Southeast New Mexico for $520 million. The sale is expected to close by the end of the fourth quarter of 2012 and is subject to customary closing conditions and purchase price adjustments.
During the third quarter of 2012, production from these divestiture properties was approximately 5,800 Boepd (approximately 60% oil). RBC Richardson Barr served as the Company's advisor in connection with the sale.
Credit Facility
In October 2012, the Company amended its credit facility, increasing the borrowing base to $3.0 billion and maintaining the aggregate lender commitments at $2.5 billion. At September 30, 2012, the Company had borrowings outstanding under the credit facility of $804 million, and the availability under the credit facility was approximately $1.7 billion.
2013 Capital Budget
Concho's capital budget for 2013 is approximately $1.6 billion, which the Company believes will yield production in the range of 32.9 to 34.3 MMBoe. This budget contemplates operating an average of 30 drilling rigs for 2013 of which 15 will be drilling horizontally. The Company estimates that its 2013 capital budget can substantially be funded with after-tax cash flow from operations assuming (i) a NYMEX crude oil price of $85.00 per barrel and a NYMEX natural gas price of $4.00 per thousand cubic feet of natural gas (“Mcf”) for the Company's unhedged production and (ii) that the Company achieves the mid-point of its 2013 production guidance. The Company intends to monitor both the direction of commodity prices and the costs of goods and services and may adjust its capital budget, and resultant estimated production and cash flows, as conditions warrant.
Of the approximately $1.6 billion capital budget, approximately $1.4 billion is dedicated to the Company's drilling program – approximately 21% will be dedicated to drilling on its New Mexico Shelf assets, approximately 54% will be dedicated to drilling horizontal projects on its Delaware Basin assets and approximately 25% will be dedicated to drilling its Texas Permian assets. Approximately 67% of the Company's drilling budget will be directed towards horizontal drilling.
The Company expects to drill or participate in a total of 631 gross wells (487 operated), which includes 186 Yeso wells, 175 Delaware Basin wells and 236 Wolfberry wells.
The remaining capital will be allocated between leasehold acquisition, geological and geophysical costs (“G&G”) and facilities.
2013 Guidance
| Production: | ||||
| Oil equivalent (MMBoe) | 32.9 - 34.3 | |||
| % Oil |
60% - 62% |
|||
| Price differentials to NYMEX: | ||||
| (excluding the effects of hedging) | ||||
| Oil (Bbl) | 93% - 95% | |||
| Natural gas (Mcf) | 140% - 160% | |||
| Operating costs and expenses: | ||||
| Lease operating expense: | ||||
| Direct lease operating expense ($/Boe) | $7.50 - $8.00 | |||
| Oil & natural gas taxes (% of oil and natural gas revenue) | 8.25% | |||
| G&A expense: | ||||
| Cash G&A expense ($/Boe) | $3.25 - $3.75 | |||
| Non-cash stock based compensation ($/Boe) | $1.10 - $1.20 | |||
| DD&A expense ($/Boe) | $20.00 - $22.00 | |||
| Exploration, abandonments and G&G ($/Boe) | $1.50 - $2.50 | |||
| Cash interest rates: | ||||
| $300 million senior notes due 2017 | 8.63% | |||
| $600 million senior notes due 2021 | 7.00% | |||
| $600 million senior notes due 2022 | 6.50% | |||
| $600 million senior notes due 2022 | 5.50% | |||
| $700 million senior notes due 2023 | 5.50% | |||
| Remainder of debt | LIBOR + (150 - 250 bps) | |||
| Non-cash interest expense ($ in millions) | $13.5 - $15.5 | |||
| Income taxes: | 38% | |||
| Percent deferred of total taxes | 75% - 85% | |||
| Capital expenditures ($ in billions) | $1.6 | |||
Management Additions
During the third quarter, the Company added two new officers to its management team.
Ms. Mona D. Ables, Vice President of Land
Prior to joining the Company, Ms. Ables served as East Texas Land Manager for Samson Resources Company. She began her career in 1981 with Exxon Company, USA and later served as District Landman for Matador Petroleum Company. Ms. Ables is a graduate of the University of Texas Permian Basin with a BBA in Petroleum Land Management.
Mr. Ben C. Rodgers, Vice President and Treasurer
Prior to joining the Company, Mr. Rodgers served as a Vice President in the Leveraged Finance Group in the Investment Bank at J.P. Morgan Securities and worked in the Advisory Services division at Ernst & Young. He received a BBA in Finance from Texas A&M University and a MBA with a concentration in Finance from the McCombs School of Business at the University of Texas at Austin.
Derivative Update
The Company maintains an active hedging program and added to its derivative positions in October 2012. Please see the “Derivatives Information” tables at the end of this press release for more detailed information about the Company's current derivative positions.
Conference Call Information
The Company will host a conference call on Thursday, November 8, 2012 at 9:00 a.m. Central Time to discuss the third quarter 2012 financial and operating results and the 2013 capital and budget guidance. Interested parties may listen to the conference call via the Company's website at www.concho.com or by dialing (866) 713-8562 (passcode: 92214608). A replay of the conference call will be available on the Company's website or by dialing (888) 286-8010 (passcode: 81275071).
About Concho Resources Inc.
Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development and exploration 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 Concho'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 facts, 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. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Company's future financial position, operations, performance, production growth, returns, divestitures, capital expenditure budget, the timing and estimated proceeds of the closing of the sale of the non-core properties, oil and natural gas reserves, number of identified drilling locations, drilling program, derivative activities, costs and other guidance. These statements are based on certain assumptions made by the Company based on management's experience, expectations and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Forward-looking statements are not guarantees of performance. Although the Company believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include the factors discussed or referenced in the "Risk Factors" section of the Company's most recent Form 10-K and 10-Q filings and risks relating to declines in the prices we receive for our oil and natural gas; uncertainties about the estimated quantities of reserves; risks related to the integration of acquired assets; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing; drilling and operating risks; the adequacy of our capital resources and liquidity; risks related to the concentration of our operations in the Permian Basin; the results of our hedging program; weather; litigation; shortages of oilfield equipment, services and qualified personnel and increases in costs for such equipment, services and personnel; uncertainties about our ability to replace reserves and economically develop our current reserves; competition in the oil and natural gas industry; and other important factors that could cause actual results to differ materially from those projected.
Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
| Concho Resources Inc. | |||||||||||
| Consolidated Balance Sheets | |||||||||||
| Unaudited | |||||||||||
| September 30, | December 31, | ||||||||||
| (in thousands, except share and per share amounts) | 2012 | 2011 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 291 | $ | 342 | |||||||
| Accounts receivable, net of allowance for doubtful accounts: | |||||||||||
| Oil and natural gas | 212,037 | 213,921 | |||||||||
| Joint operations and other | 225,225 | 153,746 | |||||||||
| Derivative instruments | 35,793 | 1,698 | |||||||||
| Deferred income taxes | - | 28,793 | |||||||||
| Prepaid costs and other | 23,522 | 12,523 | |||||||||
| Total current assets | 496,868 | 411,023 | |||||||||
| Property and equipment: | |||||||||||
| Oil and natural gas properties, successful efforts method | 9,724,422 | 7,347,460 | |||||||||
| Accumulated depletion and depreciation | (1,542,056 | ) | (1,116,545 | ) | |||||||
| Total oil and natural gas properties, net | 8,182,366 | 6,230,915 | |||||||||
| Other property and equipment, net | 97,946 | 59,203 | |||||||||
| Total property and equipment, net | 8,280,312 | 6,290,118 | |||||||||
| Funds held in escrow | - | 17,394 | |||||||||
| Deferred loan costs, net | 80,843 | 65,641 | |||||||||
| Intangible asset - operating rights, net | 32,263 | 33,425 | |||||||||
| Inventory | 27,664 | 19,419 | |||||||||
| Noncurrent derivative instruments | 6,560 | 7,944 | |||||||||
| Other assets | 8,507 | 4,612 | |||||||||
| Total assets | $ | 8,933,017 | $ | 6,849,576 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable: | |||||||||||
| Trade | $ | 18,206 | $ | 23,341 | |||||||
| Related parties | 227 | 11 | |||||||||
| Bank overdrafts | 40,524 | 39,241 | |||||||||
| Revenue payable | 142,388 | 146,061 | |||||||||
| Accrued and prepaid drilling costs | 340,245 | 293,919 | |||||||||
| Derivative instruments | 2,015 | 56,218 | |||||||||
| Deferred income taxes | 11,402 | - | |||||||||
| Other current liabilities | 145,161 | 142,686 | |||||||||
| Total current liabilities | 700,168 | 701,477 | |||||||||
| Long-term debt | 3,600,983 | 2,080,141 | |||||||||
| Deferred income taxes | 1,148,383 | 1,002,295 | |||||||||
| Noncurrent derivative instruments | 2,141 | 32,254 | |||||||||
| Asset retirement obligations and other long-term liabilities | 98,904 | 52,670 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity: | |||||||||||
| Common stock, $0.001 par value; 300,000,000 authorized; 104,666,566 and 103,756,222 | |||||||||||
| shares issued at September 30, 2012 and December 31, 2011, respectively | 105 | 104 | |||||||||
| Additional paid-in capital | 1,973,774 | 1,925,757 | |||||||||
| Retained earnings | 1,415,276 | 1,058,874 | |||||||||
| Treasury stock, at cost; 81,393 and 55,990 shares at September 30, 2012 and December 31, | |||||||||||
| 2011, respectively | (6,717 | ) | (3,996 | ) | |||||||
| Total stockholders' equity | 3,382,438 | 2,980,739 | |||||||||
| Total liabilities and stockholders' equity | $ | 8,933,017 | $ | 6,849,576 | |||||||
| Concho Resources Inc. | ||||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||||
| Unaudited | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| (in thousands, except per share amounts) | 2012 | 2011 | 2012 | 2011 | ||||||||||||||
| Operating revenues: | ||||||||||||||||||
| Oil sales | $ | 407,062 | $ | 332,659 | $ | 1,182,022 | $ | 957,833 | ||||||||||
| Natural gas sales | 90,485 | 121,809 | 256,126 | 303,707 | ||||||||||||||
| Total operating revenues | 497,547 | 454,468 | 1,438,148 | 1,261,540 | ||||||||||||||
| Operating costs and expenses: | ||||||||||||||||||
| Oil and natural gas production | 96,666 | 84,050 | 276,505 | 217,285 | ||||||||||||||
| Exploration and abandonments | 6,958 | 3,498 | 27,335 | 4,624 | ||||||||||||||
| Depreciation, depletion and amortization | 157,621 | 115,730 | 434,940 | 304,899 | ||||||||||||||
| Accretion of discount on asset retirement obligations | 1,420 | 751 | 3,455 | 2,170 | ||||||||||||||
| Impairments of long-lived assets | - | - | - | 76 | ||||||||||||||
| General and administrative (including non-cash based compensation of $7,959 and | ||||||||||||||||||
| $4,673 for the three months ended September 30, 2012 and 2011, respectively, | ||||||||||||||||||
| and $21,434 and $13,866 for the nine months ended September 30, 2012 and | ||||||||||||||||||
| 2011, respectively | 34,873 | 22,873 | 94,228 | 66,883 | ||||||||||||||
| (Gain) loss on derivatives not designated as hedges | 135,415 | (385,222 | ) | (109,542 | ) | (296,962 | ) | |||||||||||
| Total operating costs and expenses | 432,953 | (158,320 | ) | 726,921 | 298,975 | |||||||||||||
| Income from operations | 64,594 | 612,788 | 711,227 | 962,565 | ||||||||||||||
| Other income (expense): | ||||||||||||||||||
| Interest expense | (51,337 | ) | (32,881 | ) | (129,073 | ) | (84,201 | ) | ||||||||||
| Other, net | (3,114 | ) | (2,503 | ) | (4,917 | ) | (4,590 | ) | ||||||||||
| Total other expense | (54,451 | ) | (35,384 | ) | (133,990 | ) | (88,791 | ) | ||||||||||
| Income from continuing operations before income taxes | 10,143 | 577,404 | 577,237 | 873,774 | ||||||||||||||
| Income tax expense | (4,155 | ) | (221,199 | ) | (220,835 | ) | (334,000 | ) | ||||||||||
| Income from continuing operations | 5,988 | 356,205 | 356,402 | 539,774 | ||||||||||||||
| Income from discontinued operations, net of tax | - | - | - | 91,188 | ||||||||||||||
| Net income | $ | 5,988 | $ | 356,205 | $ | 356,402 | $ | 630,962 | ||||||||||
| Basic earnings per share: | ||||||||||||||||||
| Income from continuing operations | $ | 0.06 | $ | 3.47 | $ | 3.46 | $ | 5.27 | ||||||||||
| Income from discontinued operations, net of tax | - | - | - | 0.88 | ||||||||||||||
| Net income | $ | 0.06 | $ | 3.47 | $ | 3.46 | $ | 6.15 | ||||||||||
| Weighted average shares used in basic earnings per share | 103,292 | 102,733 | 103,088 | 102,517 | ||||||||||||||
| Diluted earnings per share: | ||||||||||||||||||
| Income from continuing operations | $ | 0.06 | $ | 3.44 | $ | 3.43 | $ | 5.21 | ||||||||||
| Income from discontinued operations, net of tax | - | - | - | 0.88 | ||||||||||||||
| Net income | $ | 0.06 | $ | 3.44 | $ | 3.43 | $ | 6.09 | ||||||||||
| Weighted average shares used in diluted earnings per share | 104,040 | 103,696 | 103,898 | 103,613 | ||||||||||||||
| Concho Resources Inc. | ||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| Unaudited | ||||||||||||
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| (in thousands) | 2012 | 2011 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income | $ | 356,402 | $ | 630,962 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation, depletion and amortization | 434,940 | 304,899 | ||||||||||
| Impairments of long-lived assets | - | 76 | ||||||||||
| Accretion of discount on asset retirement obligations | 3,455 | 2,170 | ||||||||||
| Exploration and abandonments, including dry holes | 15,224 | 807 | ||||||||||
| Non-cash compensation expense | 21,434 | 13,866 | ||||||||||
| Deferred income taxes | 204,804 | 312,199 | ||||||||||
| Loss on sale of assets, net | 285 | 3,129 | ||||||||||
| Gain on derivatives not designated as hedges | (109,542 | ) | (296,962 | ) | ||||||||
| Discontinued operations | - | (82,118 | ) | |||||||||
| Other non-cash items | 9,066 | 309 | ||||||||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||||||
| Accounts receivable | (54,752 | ) | (125,091 | ) | ||||||||
| Prepaid costs and other | (14,894 | ) | (8,420 | ) | ||||||||
| Inventory | (8,528 | ) | 1,204 | |||||||||
| Accounts payable | (4,919 | ) | (34,334 | ) | ||||||||
| Revenue payable | (3,673 | ) | 86,199 | |||||||||
| Other current liabilities | (3,666 | ) | (29,909 | ) | ||||||||
| Net cash provided by operating activities | 845,636 | 778,986 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Capital expenditures on oil and natural gas properties | (2,334,246 | ) | (1,046,208 | ) | ||||||||
| Additions to other property and equipment | (47,489 | ) | (29,954 | ) | ||||||||
| Proceeds from the sale of assets | 4,419 | 196,252 | ||||||||||
| Funds held in escrow | 17,394 | - | ||||||||||
| Settlements paid on derivatives not designated as hedges | (7,485 | ) | (77,835 | ) | ||||||||
| Net cash used in investing activities | (2,367,407 | ) | (957,745 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from issuance of debt | 3,856,500 | 2,079,000 | ||||||||||
| Payments of debt | (2,336,000 | ) | (1,949,500 | ) | ||||||||
| Exercise of stock options | 8,062 | 7,661 | ||||||||||
| Excess tax benefit from stock-based compensation | 18,522 | 23,222 | ||||||||||
| Payments for loan costs | (23,926 | ) | (24,466 | ) | ||||||||
| Purchase of treasury stock | (2,721 | ) | (1,946 | ) | ||||||||
| Bank overdrafts | 1,283 | 44,578 | ||||||||||
| Net cash provided by financing activities | 1,521,720 | 178,549 | ||||||||||
| Net decrease in cash and cash equivalents | (51 | ) | (210 | ) | ||||||||
| Cash and cash equivalents at beginning of period | 342 | 384 | ||||||||||
| Cash and cash equivalents at end of period | $ | 291 | $ | 174 | ||||||||
| SUPPLEMENTAL CASH FLOWS: | ||||||||||||
| Cash paid for interest and fees, net of $73 capitalized interest in 2011 | $ | 115,731 | $ | 60,752 | ||||||||
| Cash paid for income taxes | $ | 18,569 | $ | 15,610 | ||||||||
| Concho Resources Inc. | ||||||||||||||||||||
| Summary Production and Price Data | ||||||||||||||||||||
| Unaudited | ||||||||||||||||||||
|
The following table sets forth summary information from our
continuing and discontinued operations |
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| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||||||
| Production and operating data: | ||||||||||||||||||||
| Net production volumes: | ||||||||||||||||||||
| Oil (MBbl) | 4,619 | 3,869 | 13,053 | 10,618 | ||||||||||||||||
| Natural gas (MMcf) | 19,122 | 14,652 | 50,970 | 38,966 | ||||||||||||||||
| Total (MBoe) | 7,806 | 6,311 | 21,548 | 17,112 | ||||||||||||||||
| Average daily production volumes: | ||||||||||||||||||||
| Oil (Bbl) | 50,207 | 42,054 | 47,639 | 38,894 | ||||||||||||||||
| Natural gas (Mcf) | 207,848 | 159,258 | 186,022 | 142,732 | ||||||||||||||||
| Total (Boe) | 84,848 | 68,597 | 78,643 | 62,682 | ||||||||||||||||
| Average prices: | ||||||||||||||||||||
| Oil, without derivatives (Bbl) | $ | 88.13 | $ | 85.98 | $ | 90.56 | $ | 91.10 | ||||||||||||
| Oil, with derivatives (Bbl) (a) | $ | 91.56 | $ | 83.90 | $ | 89.91 | $ | 82.75 | ||||||||||||
| Natural gas, without derivatives (Mcf) | $ | 4.73 | $ | 8.31 | $ | 5.03 | $ | 7.80 | ||||||||||||
| Natural gas, with derivatives (Mcf) (a) | $ | 4.75 | $ | 8.74 | $ | 5.04 | $ | 8.24 | ||||||||||||
| Total, without derivatives (Boe) | $ | 63.74 | $ | 72.01 | $ | 66.74 | $ | 74.28 | ||||||||||||
| Total, with derivatives (Boe) (a) | $ | 65.81 | $ | 71.73 | $ | 66.39 | $ | 70.12 | ||||||||||||
| Operating costs and expenses per Boe: | ||||||||||||||||||||
| Lease operating expenses and workover costs | $ | 7.15 | $ | 7.42 | $ | 7.30 | $ | 6.69 | ||||||||||||
| Oil and natural gas taxes | $ | 5.24 | $ | 5.90 | $ | 5.53 | $ | 6.10 | ||||||||||||
| Depreciation, depletion and amortization | $ | 20.19 | $ | 18.34 | $ | 20.18 | $ | 17.94 | ||||||||||||
| General and administrative | $ | 4.47 | $ | 3.62 | $ | 4.37 | $ | 3.91 | ||||||||||||
| (a) |
Includes the effect of cash settlements received from (paid on)
commodity derivatives not designated as hedges and reported in
operating costs and expenses. |
|||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| (in thousands) | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||
| Gain (loss) on derivatives not designated as hedges: | ||||||||||||||||||||
| Cash receipts from (payments on) oil derivatives | $ | 15,859 | $ | (8,051 | ) | $ | (8,374 | ) | $ | (88,679 | ) | |||||||||
| Cash receipts from natural gas derivatives | 280 | 6,263 | 889 | 17,468 | ||||||||||||||||
| Cash payments on interest rate derivatives | - | - | - | (6,624 | ) | |||||||||||||||
|
Unrealized mark-to-market gain (loss) on commodity and interest rate derivatives |
(151,554 | ) | 387,010 | 117,027 | 374,797 | |||||||||||||||
| Gain (loss) on derivatives not designated as hedges | $ | (135,415 | ) | $ | 385,222 | $ | 109,542 | $ | 296,962 | |||||||||||
|
|
||||||||||||||||||||
The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash receipts from (payments on) commodity derivatives that are presented in gain (loss) on derivatives not designated as hedges in the statements of operations. 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.
The following table sets forth summary information from our continuing operations concerning production and operating data for the periods indicated:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||||||
| Production and operating data: | ||||||||||||||||||||
| Net production volumes: | ||||||||||||||||||||
| Oil (MBbl) | 4,619 | 3,869 | 13,053 | 10,501 | ||||||||||||||||
| Natural gas (MMcf) | 19,122 | 14,652 | 50,970 | 38,929 | ||||||||||||||||
| Total (MBoe) | 7,806 | 6,311 | 21,548 | 16,989 | ||||||||||||||||
| Average daily production volumes: | ||||||||||||||||||||
| Oil (Bbl) | 50,207 | 42,054 | 47,639 | 38,465 | ||||||||||||||||
| Natural gas (Mcf) | 207,848 | 159,258 | 186,022 | 142,596 | ||||||||||||||||
| Total (Boe) | 84,848 | 68,597 | 78,643 | 62,231 | ||||||||||||||||
| Average prices: | ||||||||||||||||||||
| Oil, without derivatives (Bbl) | $ | 88.13 | $ | 85.98 | $ | 90.56 | $ | 91.21 | ||||||||||||
| Oil, with derivatives (Bbl) (a) | $ | 91.56 | $ | 83.90 | $ | 89.91 | $ | 82.77 | ||||||||||||
| Natural gas, without derivatives (Mcf) | $ | 4.73 | $ | 8.31 | $ | 5.03 | $ | 7.80 | ||||||||||||
| Natural gas, with derivatives (Mcf) (a) | $ | 4.75 | $ | 8.74 | $ | 5.04 | $ | 8.25 | ||||||||||||
| Total, without derivatives (Boe) | $ | 63.74 | $ | 72.01 | $ | 66.74 | $ | 74.26 | ||||||||||||
| Total, with derivatives (Boe) (a) | $ | 65.81 | $ | 71.73 | $ | 66.39 | $ | 70.06 | ||||||||||||
| Operating costs and expenses per Boe: | ||||||||||||||||||||
| Lease operating expenses and workover costs | $ | 7.15 | $ | 7.42 | $ | 7.30 | $ | 6.72 | ||||||||||||
| Oil and natural gas taxes | $ | 5.24 | $ | 5.90 | $ | 5.53 | $ | 6.07 | ||||||||||||
| Depreciation, depletion and amortization | $ | 20.19 | $ | 18.34 | $ | 20.18 | $ | 17.95 | ||||||||||||
| General and administrative | $ | 4.47 | $ | 3.62 | $ | 4.37 | $ | 3.94 | ||||||||||||
| (a) |
Includes the effect of cash settlements received from (paid on)
commodity derivatives not designated as hedges and reported in
operating costs and expenses. |
|||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| (in thousands) | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||
| Gain (loss) on derivatives not designated as hedges: | ||||||||||||||||||||
| Cash receipts from (payments on) oil derivatives | $ | 15,859 | $ | (8,051 | ) | $ | (8,374 | ) | $ | (88,679 | ) | |||||||||
| Cash receipts from natural gas derivatives | 280 | 6,263 | 889 | 17,468 | ||||||||||||||||
| Cash payments on interest rate derivatives | - | - | - | (6,624 | ) | |||||||||||||||
|
Unrealized mark-to-market gain (loss) on commodity and interest rate derivatives |
(151,554 | ) | 387,010 | 117,027 | 374,797 | |||||||||||||||
| Gain (loss) on derivatives not designated as hedges | $ | (135,415 | ) | $ | 385,222 | $ | 109,542 | $ | 296,962 | |||||||||||
| The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash receipts from (payments on) commodity derivatives that are presented in gain (loss) on derivatives not designated as hedges in the statements of operations. This presentation of average prices with derivatives is a means by which to reflect the actual cash performance of our commodity derivatives for the respective periods and presents oil and natural gas prices with derivatives in a manner consistent with the presentation generally used by the investment community. | ||||||||||||||||||||
Concho Resources Inc.
Supplemental Non-GAAP Financial
Measures
Unaudited
The following tables provide information that the Company believes may be useful to investors who follow the practice of some industry analysts who adjust reported company net income and cash flows from operating activities to exclude certain non-cash items.
Adjusted Net Income
The following table provides a reconciliation of net income (GAAP) to adjusted net income (non-GAAP) for the three and nine months ended September 30, 2012 and 2011.
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| (in thousands, except per share amounts) | 2012 | 2011 | 2012 | 2011 | ||||||||||||||
| Net income - as reported | $ | 5,988 | $ | 356,205 | $ | 356,402 | $ | 630,962 | ||||||||||
| Adjustments for certain non-cash items: | ||||||||||||||||||
| Unrealized (gain) loss on commodity and interest rate derivatives | 151,554 | (387,010 | ) | (117,027 | ) | (374,797 | ) | |||||||||||
| Impairments of long-lived assets | - | - | - | 76 | ||||||||||||||
| Leasehold abandonments | 677 | 639 | 9,234 | 795 | ||||||||||||||
| Discontinued operations: | ||||||||||||||||||
| Gain on sale of assets | - | - | - | (141,950 | ) | |||||||||||||
| Tax impact (a) | (58,457 | ) | 147,980 | 41,285 | 197,065 | |||||||||||||
| Adjusted net income | $ | 99,762 | $ | 117,814 | $ | 289,894 | $ | 312,151 | ||||||||||
| Adjusted basic earnings per share: | ||||||||||||||||||
| Adjusted net income per share | $ | 0.97 | $ | 1.15 | $ | 2.81 | $ | 3.04 | ||||||||||
| Weighted average shares used in adjusted basic earnings per share | 103,292 | 102,733 | 103,088 | 102,517 | ||||||||||||||
| Adjusted diluted earnings per share: | ||||||||||||||||||
| Adjusted net income per share | $ | 0.96 | $ | 1.14 | $ | 2.79 | $ | 3.01 | ||||||||||
| Weighted average shares used in adjusted diluted earnings per share | 104,040 | 103,696 | 103,898 | 103,613 | ||||||||||||||
| (a) | The tax impact is computed utilizing the Company's adjusted statutory effective federal and state income tax rates. The income tax rates for the three months ended September 30, 2012 and 2011 were approximately 38.4% and 38.3%, respectively, and 38.3% and 38.2% for the nine months ended September 30, 2012 and 2011, respectively. | |||||||||||||||||
Adjusted Cash Flows
The following table provides a reconciliation of cash flows from operating activities (GAAP) to adjusted cash flows (non-GAAP) for the nine months ended September 30, 2012 and 2011.
| Nine Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| (in thousands) | 2012 | 2011 | ||||||||||||
| Cash flows from operating activities | $ | 845,636 | $ | 778,986 | ||||||||||
| Settlements paid on derivatives not designated as hedges (a) | (7,485 | ) | (77,835 | ) | ||||||||||
| Adjusted cash flows | $ | 838,151 | $ | 701,151 | ||||||||||
| (a) Amounts are presented in cash flows from investing activities for GAAP purposes. | ||||||||||||||
EBITDAX
EBITDAX (as defined below) is presented herein, and reconciled from the generally accepted accounting principles ("GAAP") measure of net income because of its wide acceptance by the investment community as a financial indicator of a company's ability to internally fund exploration and development activities.
We define EBITDAX as net income, plus (1) exploration and abandonments expense, (2) depreciation, depletion and amortization expense, (3) accretion expense, (4) impairments of long-lived assets, (5) non-cash stock-based compensation expense, (6) unrealized (gain) loss on derivatives not designated as hedges, (7) loss on sale of assets, (8) interest expense, (9) federal and state income taxes on continuing operations and (10) similar items listed above that are presented in discontinued operations. EBITDAX is not a measure of net income or cash flows as determined by GAAP.
Our EBITDAX measure (which includes continuing and discontinued operations) provides additional information which may be used to better understand our operations. EBITDAX is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net income, as an indicator of our operating performance. Certain items excluded from EBITDAX are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic cost of depreciable assets, none of which are components of EBITDAX. EBITDAX, as used by us, may not be comparable to similarly titled measures reported by other companies. We believe that EBITDAX is a widely followed measure of operating performance and is one of many metrics used by our management team, and by other users, of our consolidated financial statements. For example, EBITDAX can be used to assess our 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 our assets and our company without regard to capital structure or historical cost basis.
The following table provides a reconciliation of net income to EBITDAX for the three and nine months ended September 30, 2012 and 2011:
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| (in thousands) | 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net income | $ | 5,988 | $ | 356,205 | $ | 356,402 | $ | 630,962 | |||||||||
| Exploration and abandonments | 6,958 | 3,498 | 27,335 | 4,624 | |||||||||||||
| Depreciation, depletion and amortization | 157,621 | 115,730 | 434,940 | 304,899 | |||||||||||||
| Accretion of discount on asset retirement obligations | 1,420 | 751 | 3,455 | 2,170 | |||||||||||||
| Impairments of long-lived assets | - | - | - | 76 | |||||||||||||
| Non-cash stock-based compensation | 7,959 | 4,673 | 21,434 | 13,866 | |||||||||||||
| Unrealized (gain) loss on derivatives not designated as hedges | 151,554 | (387,010 | ) | (117,027 | ) | (374,797 | ) | ||||||||||
| Loss on sale of assets, net | 217 | 1,674 | 285 | 3,129 | |||||||||||||
| Interest expense | 51,337 | 32,881 | 129,073 | 84,201 | |||||||||||||
| Income tax expense on continuing operations | 4,155 | 221,199 | 220,835 | 334,000 | |||||||||||||
| Discontinued operations | - | - | - | (83,306 | ) | ||||||||||||
| EBITDAX | $ | 387,209 | $ | 349,601 | $ | 1,076,732 | $ | 919,824 | |||||||||
| Concho Resources Inc. | ||||||||||||||
| Costs Incurred | ||||||||||||||
| Unaudited | ||||||||||||||
|
The table below provides the costs incurred for the three and nine months ended September 30, 2012 and 2011. |
||||||||||||||
| Costs incurred for oil and natural gas producing activities (a) | ||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| (in thousands) | 2012 | 2011 | 2012 | 2011 | ||||||||||
| Property acquisition costs: | ||||||||||||||
| Proved | $ | 690,158 | $ | - | $ | 855,773 | $ | 69,148 | ||||||
| Unproved | 349,903 | 42,432 | 411,110 | 117,772 | ||||||||||
| Exploration | 223,569 | 138,170 | 567,065 | 410,089 | ||||||||||
| Development | 187,759 | 233,062 | 574,541 | 567,547 | ||||||||||
| Total costs incurred for oil and natural gas properties | $ | 1,451,389 | $ | 413,664 | $ | 2,408,489 | $ | 1,164,556 | ||||||
| (a) | The costs incurred for oil and natural gas producing activities includes the following amounts of asset retirement obligations: | |||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| (in thousands) | 2012 | 2011 | 2012 | 2011 | ||||||||||
| Proved property acquisition costs | $ | 26,986 | $ | - | $ | 29,113 | $ | 148 | ||||||
| Exploration costs | 1,185 | 198 | 2,452 | 838 | ||||||||||
| Development costs | 5,019 | 1,342 | 8,302 | 2,094 | ||||||||||
| Total asset retirement obligations | $ | 33,190 | $ | 1,540 | $ | 39,867 | $ | 3,080 | ||||||
| Concho Resources Inc. | |||||||||||||||||||||||||
| Derivatives Information | |||||||||||||||||||||||||
| Unaudited | |||||||||||||||||||||||||
|
The table below provides data associated with the Company's derivatives at November 7, 2012. |
|||||||||||||||||||||||||
| Fourth Quarter | |||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||
| Oil Swaps: | |||||||||||||||||||||||||
| Volume (Bbl) | 4,151,500 | 13,330,000 | 7,283,000 | 1,076,000 | 429,000 | 168,000 | |||||||||||||||||||
| NYMEX price (Bbl) (a) | $ | 95.51 | $ | 95.77 | $ | 91.93 | $ | 86.69 | $ | 88.31 | $ | 87.00 | |||||||||||||
| Natural Gas Swaps: | |||||||||||||||||||||||||
| Volume (MMBtu) | 75,000 | - | - | - | - | - | |||||||||||||||||||
| NYMEX price (MMBtu) (b) | $ | 6.54 | - | - | - | - | - | ||||||||||||||||||
| (a) | The index prices for the oil contracts are based on the NYMEX – West Texas Intermediate monthly average futures price. | ||||||||||||||||||||||||
| (b) | The index prices for the natural gas contracts are based on the NYMEX – Henry Hub last trading day of the month futures price. | ||||||||||||||||||||||||
Concho Resources Inc.
Price Moncrief, 432-683-7443
Vice
President of Capital Markets and Strategy
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