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Concho Resources Inc. Reports Third-Quarter 2019 Results

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Concho Resources Inc. (NYSE:CXO) (the "Company" or "Concho") today reported financial and operating results for third-quarter 2019.

Third-Quarter 2019 Highlights

  • Delivered total production of 330 MBoepd, exceeding the high end of the Company's guidance range.
  • Achieved oil production volumes of 206 MBopd.
  • Reduced controllable cash costs per unit 3% year over year.
  • Surpassed year-end 2019 well cost reduction target with 20% lower well costs versus first-half 2019, led by a significant reduction in Delaware Basin well costs.
  • Announced strategic New Mexico Shelf divestiture for total cash consideration of $925 million, subject to customary closing and post-closing adjustments.
  • Authorized initiation of a $1.5 billion share repurchase program.
  • Generated cash flow from operating activities of $665 million; operating cash flow before working capital changes (non-GAAP) was $706 million, exceeding exploration and development costs incurred of $670 million.
  • Reported net income of $558 million, or $2.78 per share. Adjusted net income (non-GAAP) totaled $122 million, or $0.61 per share.
  • Generated $757 million of adjusted EBITDAX (non-GAAP).

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, "The fundamentals of our business are solid, as demonstrated by our strong operational and financial performance in the third quarter. We achieved our production targets and materially reduced well costs, enabling us to surpass our well cost targets for the year and generate operating cash flow that exceeded capital spending. We also made significant progress on other important initiatives, including the sale of our New Mexico Shelf assets. The transaction was an important step in high-grading our portfolio, and we will use the proceeds to achieve our debt reduction target and accelerate the return of capital to shareholders. Through our focus on enhancing capital efficiency, improving costs and actively managing our portfolio, Concho is positioned to deliver sustainable, competitive growth and superior returns for investors."

Third-Quarter 2019 Summary

Third-quarter 2019 oil production volumes increased 12% year over year to 206 thousand barrels per day (MBopd). Natural gas production for third-quarter 2019 totaled 744 million cubic feet per day (MMcfpd). The Company's total production for third-quarter 2019 grew 15% year over year to 330 thousand barrels of oil equivalent per day (MBoepd).

Net income for third-quarter 2019 was $558 million, or $2.78 per share. Special items impacting earnings for the quarter included a $101 million impairment, primarily related to the Company's New Mexico Shelf assets held for sale, and a $299 million gain on the disposition of assets as a result of the previously-announced contribution of assets to a water infrastructure joint venture. Excluding these and other special items, third-quarter 2019 adjusted net income (non-GAAP) was $122 million, or $0.61 per share. Concho's average realized price for oil and natural gas for third-quarter 2019, excluding the effect of commodity derivatives, was $54.01 per Bbl and $1.34 per Mcf, respectively. Controllable cash costs, which include lease operating and workover expenses, cash general and administrative expenses and cash interest expense, totaled $9.57 per Boe, representing a 3% decrease year over year. The Company is targeting controllable cash costs of $9.00 per Boe by year-end 2020.

For third-quarter 2019, cash flow from operating activities was $665 million, including $41 million in working capital changes. Operating cash flow before working capital changes (non-GAAP) was $706 million, exceeding third quarter costs incurred for exploration and development activities of $670 million. During third-quarter 2019, the Company materially improved well costs and surpassed its year-end 2019 well cost reduction target of 10%. Drilling, completion & equipment (DC&E) costs totaled $955 per foot, representing a 20% reduction from first-half 2019. DC&E costs were $1,118 per foot in the Delaware Basin and $791 per foot in the Midland Basin.

Additional information on the Company's operational results is included in the Company's 3Q 2019 Quarterly Update at www.concho.com.

Strategic Asset Sale Accelerates Value

In September, the Company announced the sale of its New Mexico Shelf assets to an affiliate of Spur Energy Partners LLC for $925 million. The transaction is expected to close in early November and is subject to customary terms, conditions and closing and post-closing adjustments. The Company intends to use the proceeds from the transaction to pay down borrowings on its revolving credit facility and initiate a $1.5 billion share repurchase program. As of September 30, 2019, Concho had long-term debt of approximately $4.3 billion, including $395 million of outstanding borrowings under its credit facility.

Outlook

Fourth-quarter 2019 production is expected to be 318 MBoepd to 325 MBoepd (64% oil), which reflects the impact of the Company's planned New Mexico Shelf sale. Excluding the impact of the planned asset sale, fourth-quarter 2019 production is expected to be 334 MBoepd to 341 MBoepd (64% oil). Fourth-quarter 2019 gathering, processing and transportation expense and depletion, depreciation and amortization expense are forecasted to be $1.35 per Boe to $1.45 per Boe and $16.50 per Boe to $16.85 per Boe, respectively.

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.

Third-Quarter 2019 Conference Call

Concho will host a conference call tomorrow, October 30, 2019, at 8:00 AM CT (9:00 AM ET) to discuss third-quarter 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: 5785506

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" 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 and operating cash flow before working capital changes.

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

 

September 30,

 

December 31,

(in millions, except share and per share amounts)

2019

 

2018

Assets

Current assets:

 

 

 

Cash and cash equivalents

$

 

 

$

 

Accounts receivable, net of allowance for doubtful accounts:

 

 

 

Oil and natural gas

535

 

 

466

 

Joint operations and other

263

 

 

365

 

Inventory

30

 

 

35

 

Assets held for sale

930

 

 

 

Derivative instruments

201

 

 

484

 

Prepaid costs and other

58

 

 

59

 

Total current assets

2,017

 

 

1,409

 

Property and equipment:

 

 

 

Oil and natural gas properties, successful efforts method

28,497

 

 

31,706

 

Accumulated depletion and depreciation

(7,477

)

 

(9,701

)

Total oil and natural gas properties, net

21,020

 

 

22,005

 

Other property and equipment, net

408

 

 

308

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