Concho Resources Inc. Reports Fourth Quarter 2012 and Year End Financial and Operating Results

Concho Resources Inc. Reports Fourth Quarter 2012 and Year End Financial and Operating Results

MIDLAND, Texas--(BUSINESS WIRE)-- Concho Resources Inc. (NYS: CXO) ("Concho" or the "Company") today reported financial and operating results for the three months and year ended December 31, 2012. Highlights for the year ended December 31, 2012 include:

  • Production of 29.8 million barrels of oil equivalent ("MMBoe") for 2012, a 26% increase over 2011

  • Net income of $431.7 million, or $4.15 per diluted share, for 2012, as compared to net income of $548.1 million, or $5.28 per diluted share, in 2011

  • Adjusted net income1 (non-GAAP) of $388.6 million, or $3.74 per diluted share, for 2012, as compared to $430.1 million, or $4.15 per diluted share, for 2011

  • EBITDAX2 (non-GAAP) of $1,475.6 million for 2012, a 16% increase over 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.

Year End 2012 Financial Results

Production for 2012 totaled 29.8 MMBoe (18.0 million barrels of oil ("MMBbls") and 70.6 billion cubic feet of natural gas ("Bcf")), an increase of 26% as compared to 23.6 MMBoe (14.7 MMBbls and 53.7 Bcf) produced in 2011.

Tim Leach, Concho's Chairman, CEO and President, commented, "In 2012, Concho was able to execute our $1.5 billion capital program and grow production in excess of 20% organically. In addition, we positioned the Company for future growth in emerging areas such as the Delaware Basin through the acquisition of Three Rivers and internally identified drilling locations. Today, our opportunity set is deeper than at any time in the Company's history and we look forward to executing on our inventory of high rate of return projects."

For 2012, the Company reported net income of $431.7 million, or $4.15 per diluted share, as compared to net income of $548.1 million, or $5.28 per diluted share, for 2011. The Company's 2012 results were impacted by several non-cash items including: (1) a $103.9 million unrealized mark-to-market gain on commodity derivatives, (2) $12.4 million of leasehold abandonments, (3) $3.2 million of other settlements and (4) an $18.7 million loss related to the sale of non-core assets included in discontinued operations. Excluding these items and their tax effects, the 2012 adjusted net income (non-GAAP) was $388.6 million, or $3.74 per diluted share. Excluding similar non-cash items and their tax impact, adjusted net income (non-GAAP) for 2011 was $430.1 million, or $4.15 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 $1,475.6 million in 2012, an increase of 16% from $1,275.2 million in 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 from continuing operations for 2012 increased 12% when compared to 2011. This increase was attributable to a 27% increase in production from continuing operations in 2012 compared to 2011, which was partially offset by a 34% decrease in the Company's unhedged realized natural gas price and a 4% decrease in the Company's unhedged realized oil price. Oil and natural gas production expense from continuing operations for 2012, including oil and natural gas taxes, totaled $343.7 million, or $12.29 per barrel of oil equivalent ("Boe"), a 3% decrease per Boe from 2011. This decrease was due primarily to lower oil and natural gas taxes, which averaged $5.39 per Boe in 2012 as compared to $5.96 per Boe in 2011. The decrease in oil and natural gas taxes per Boe over 2011 was primarily due to lower realized oil and natural gas prices.

Depreciation, depletion and amortization expense ("DD&A") from continuing operations for 2012 totaled $575.1 million, or $20.56 per Boe, a 13% increase per Boe from 2011.

General and administrative expense ("G&A") from continuing operations for 2012 totaled $133.8 million, or $4.79 per Boe, as compared to $98.5 million, or $4.48 per Boe, in 2011. Cash G&A for 2012 totaled $103.9 million and stock-based compensation (non-cash) totaled $29.9 million. The increase in per Boe expense for 2012 over 2011 was primarily due to a 36% increase in absolute G&A expenses reflecting increased staffing across the Company, and was partially offset by a 27% increase in production from continuing operations.

The Company's cash flow from operating activities (GAAP) was $1,237.5 million for 2012, as compared to $1,199.5 million for 2011, an increase of 3%. Adjusted cash flows (non-GAAP), which are cash flows from operating activities (GAAP) adjusted for settlements on derivatives not designated as hedges, were $1,261.0 million for 2012, as compared to $1,114.6 million for 2011, an increase of 13%. 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 2012, the Company collected net cash receipts on derivatives not designated as hedges of $23.5 million and the non-cash unrealized mark-to-market gain on derivatives not designated as hedges was $103.9 million. In comparison, the Company made net cash payments of $84.9 million on derivatives not designated as hedges and reported a $61.5 million non-cash unrealized mark-to-market gain on derivatives not designated as hedges in 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 2012, the Company commenced drilling or participated in a total of 840 gross wells (657 operated), 5 of which were plugged and abandoned, and completed 798 wells as producers.

The table below summarizes the Company's gross drilling activities by core area for the fourth quarter and full year 2012:

Total Wells1

Operated Wells

Completed Wells

4Q 2012

FY 2012

4Q 2012

FY 2012

4Q 2012

FY 2012

New Mexico Shelf

73

360

29

251

85

348

Delaware Basin

45

154

29

87

47

134

Texas Permian

78

326

77

319

78

316

Total

196

840

135

657

210

798

1 Includes 5 wells that were plugged and abandoned in 2012.

Currently, the Company is operating 31 drilling rigs; 5 of these rigs are drilling Yeso wells in the New Mexico Shelf, 14 are drilling in the Texas Permian and 12 are drilling in the Delaware Basin. Of the 31 operated rigs, the Company is currently running 16 horizontal drilling rigs, including 12 in the Delaware Basin, 1 in the Texas Permian and 3 in the New Mexico Shelf.

New Mexico Shelf

At year-end 2012, the Company had identified 2,083 locations on the New Mexico Shelf, with proved reserves attributed to 616 of such locations. Of these 2,083 drilling locations, 1,044 locations target the Yeso formation vertically and 676 locations targeting the Yeso formation horizontally.

Delaware Basin

At year-end 2012, the Company had identified 4,212 drilling locations in the northern Delaware Basin, an increase of over 2,300 drilling locations since year-end 2011, with proved reserves attributed to 246 of such locations. These locations include 2,462 targeting the Bone Spring sands, 1,016 targeting the Avalon shale and 734 targeting other formations. Concho has not included any potential drilling locations across its approximately 147,000 gross (128,000 net) acres in the southern Delaware Basin.

The Company's net production in the fourth quarter of 2012 from horizontal Delaware Basin wells averaged approximately 21,100 barrels of oil equivalent per day ("Boepd") an increase of 92% over the fourth quarter of 2011 and an increase of 32% over the third quarter of 2012.

Texas Permian

At year-end 2012, the Company had identified 5,974 drilling locations, with proved reserves associated with 1,464 of such locations. Of these 5,974 drilling locations, 1,955 target the Wolfberry play on 40-acre spacing, 2,486 target the Wolfberry play on 20-acre spacing, 1,410 target the shallow Wolfcamp vertically and the remaining drilling locations target other objectives.

Derivative Update

The Company maintains an active hedging program and has added to its derivative positions. In addition to the incremental crude oil swaps, Concho has added basis swaps that limit the Company's exposure to the Midland-to-Cushing differential. Concho has hedged 9.0 MMBbls of the basis differential at an average price of ($1.23) per Bbl from April 2013 to December 2013. Please see the "Derivatives Information" table at the end of this press release for more detailed information about the Company's current derivative positions.

Credit Facility

At December 31, 2012, the Company had borrowings outstanding under its credit facility of $304.0 million, and the availability under the credit facility was approximately $2.2 billion.

Conference Call Information

The Company will host a conference call on Thursday, February 21, 2013 at 9:00 a.m. Central Time to discuss the fourth quarter 2012 and year-end financial and operating results. Interested parties may listen to the conference call via the Company's website at www.concho.com or by dialing (866) 271-5140 (passcode: 10112096). A replay of the conference call will be available on the Company's website or by dialing (888) 286-8010 (passcode: 61682005).

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 proceeds 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

December 31,

(in thousands, except share and per share amounts)

2012

2011

Assets

Current assets:

Cash and cash equivalents

$

2,880

$

342

Accounts receivable, net of allowance for doubtful accounts:

Oil and natural gas

198,053

213,921

Joint operations and other

202,738

153,746

Derivative instruments

35,942

1,698

Deferred income taxes

-

28,793

Prepaid costs and other

19,269

12,523

Total current assets

458,882

411,023

Property and equipment:

Oil and natural gas properties, successful efforts method

9,455,599

7,347,460

Accumulated depletion and depreciation

(1,565,316

)

(1,116,545

)

Total oil and natural gas properties, net

7,890,283

6,230,915

Other property and equipment, net

103,141

59,203

Total property and equipment, net

7,993,424

6,290,118

Funds held in escrow

-

17,394

Deferred loan costs, net

77,609

65,641

Intangible asset - operating rights, net

30,076

33,425

Inventory

20,611

19,419

Noncurrent derivative instruments

2,769

7,944

Other assets

6,066

4,612

Total assets

$

8,589,437

$

6,849,576

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable:

Trade

$

31,144

$

23,198

Related parties

185

154

Bank overdrafts

24,275

39,241

Revenue payable

162,073

146,061

Accrued and prepaid drilling costs

351,919

293,919

Derivative instruments

1,584

56,218

Deferred income taxes

8,566

-

Other current liabilities

160,340

142,686

Total current liabilities

740,086

701,477

Long-term debt

3,101,103

2,080,141

Deferred income taxes

1,186,621

1,002,295

Noncurrent derivative instruments

12,049

32,254

Asset retirement obligations and other long-term liabilities

83,382

52,670

Commitments and contingencies

Stockholders' equity:

Common stock, $0.001 par value; 300,000,000 authorized; 104,668,427 and 103,756,222

shares issued at December 31, 2012 and 2011, respectively

105

104

Additional paid-in capital

1,982,714

1,925,757

Retained earnings

1,490,563

1,058,874

Treasury stock, at cost; 86,861 and 55,990 shares at December 31, 2012 and 2011,

respectively

(7,186

)

(3,996

)

Total stockholders' equity

3,466,196

2,980,739

Total liabilities and stockholders' equity

$

8,589,437

$

6,849,576

Concho Resources Inc.

Consolidated Statements of Operations

Unaudited

Three Months Ended

Years Ended

December 31,

December 31,

(in thousands, except per share amounts)

2012

2011 (a)

2012

2011 (a)

Operating revenues:

Oil sales

$

383,494

$

344,005

$

1,482,998

$

1,228,167

Natural gas sales

94,032

100,337

336,816

389,604

Total operating revenues

477,526

444,342

1,819,814

1,617,771

Operating costs and expenses:

Oil and natural gas production

92,102

82,148

343,743

277,929

Exploration and abandonments

12,505

6,770

39,840

11,394

Depreciation, depletion and amortization

166,453

115,249

575,128

400,022

Accretion of discount on asset retirement obligations

1,361

669

4,187

2,444

Impairments of long-lived assets

-

363

-

439

General and administrative (including non-cash stock-based compensation of

$8,438 and $5,405 for the three months ended December 31, 2012 and

2011, respectively, and $29,872 and $19,271 for the years ended

December 31, 2012 and 2011, respectively)

37,802

29,960

133,796

98,525

(Gain) loss on derivatives not designated as hedges

(17,901

)

320,312

(127,443

)

23,350

Total operating costs and expenses

292,322

555,471

969,251

814,103

Income (loss) from operations

185,204

(111,129

)

850,563

803,668

Other income (expense):

Interest expense

(53,632

)

(34,159

)

(182,705

)

(118,360

)

Other, net

(3,670

)

616

(8,587

)

(3,974

)

Total other expense

(57,302

)

(33,543

)

(191,292

)

(122,334

)