Concho Resources Inc. Reports First Quarter 2013 Financial and Operating Results

Concho Resources Inc. Reports First Quarter 2013 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 ended March 31, 2013. Highlights for the three months ended March 31, 2013 include:

  • Production from continuing operations of 7.7 million barrels of oil equivalent ("MMBoe") for the first quarter of 2013, a 19% increase over the first quarter of 2012

  • Net income of $30.1 million, or $0.29 per diluted share, for the first quarter of 2013, as compared to net income of $31.1 million, or $0.30 per diluted share, for the first quarter of 2012

  • Adjusted net income1 (non-GAAP) of $60.3 million, or $0.58 per diluted share, for the first quarter of 2013, as compared to $108.2 million, or $1.04 per diluted share, for the first quarter of 2012

  • EBITDAX2 (non-GAAP) of $340.7 million for the first quarter of 2013

1 Adjusted net income (non-GAAP) is comparable to securities analyst estimates. For an explanation of how the Company calculates and uses 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 the Company calculates and uses EBITDAX (non-GAAP) and a reconciliation of net income (GAAP) to EBITDAX (non-GAAP), please see "Supplemental Non-GAAP Financial Measures" below.

First Quarter 2013 Financial Results

Production from continuing operations for the first quarter of 2013 totaled 7.7 MMBoe (4.8 million barrels of oil ("MMBbls") and 17.8 billion cubic feet of natural gas ("Bcf")), an increase of 19% as compared to 6.5 MMBoe (3.9 MMBbls and 15.5 Bcf) produced in the first quarter of 2012.

Tim Leach, Concho's Chairman, CEO and President commented, "I am pleased with the operational performance of our business despite the unprecedented widening of the Permian oil basis differential during the quarter. Through the first three months of the year, I believe we are on track to deliver on our annual production guidance and capital budget. We continue to build upon our horizontal success in the Delaware Basin, where production increased 10% over the previous quarter. The Delaware Basin also contributed to overall oil growth of 3% over the previous quarter and will be a key source of oil growth for years to come."

For the first quarter of 2013, the Company reported net income of $30.1 million, or $0.29 per diluted share, as compared to net income of $31.1 million, or $0.30 per diluted share, for the first quarter of 2012. The Company's first quarter 2013 results were impacted by several non-cash items including: (1) a $65.0 million unrealized mark-to-market loss on commodity derivatives; (2) $4.4 million of leasehold abandonments; and (3) a $20.4 million gain on sale of assets related to estimates of post-closing adjustments on the December 2012 divestment (included in discontinued operations). Excluding these items and their tax effects, first quarter 2013 adjusted net income (non-GAAP) was $60.3 million, or $0.58 per diluted share. Excluding similar non-cash items and their tax impact, adjusted net income (non-GAAP) for the first quarter of 2012 was $108.2 million, or $1.04 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 $340.7 million in the first quarter of 2013, a decrease of 6% from $362.1 million reported in the first quarter of 2012. 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 the first quarter of 2013 decreased 0.3% when compared to the first quarter of 2012. This decrease was attributable to a 16% decrease ($15.61 per barrel) in the Company's unhedged realized oil price and a 23% decrease ($1.35 per Mcf) in the Company's unhedged realized natural gas price, which was partially offset by a 19% increase in production from continuing operations.

The Company's realized oil price for the first quarter of 2013 and fourth quarter of 2012 was adversely affected by the expansion of the Midland-to-Cushing basis differential. The Midland-to-Cushing Basis differential was $7.80 per barrel and $3.57 per barrel for the first quarter of 2013 and fourth quarter of 2012, respectively, compared to $1.48 per barrel in the first quarter of 2012. The Midland-to-Cushing Basis differential for April and May of 2013 was $0.38 and $0.17 per barrel, respectively. The decrease in realized natural gas prices between comparable periods is primarily due to the decrease in the value of the natural gas liquids included in the Company's natural gas revenues despite an increase between comparable periods in the NYMEX natural gas price.

Oil and natural gas production expense from continuing operations for the first quarter of 2013, including oil and natural gas taxes, totaled $100.8 million, or $13.05 per barrel of oil equivalent ("Boe"), a 4% increase per Boe from the first quarter of 2012. This increase was due primarily to higher lease operating expenses and workover costs, which averaged $7.74 per Boe in the first quarter of 2013 as compared to $6.58 per Boe in the first quarter of 2012, which was partially offset by lower oil and natural gas taxes, which averaged $5.31 per Boe in the first quarter of 2013 as compared to $5.96 per Boe in the first quarter of 2012. The decrease in oil and natural gas taxes per Boe in the first quarter of 2013 as compared to the first quarter of 2012 was primarily due to lower realized oil and natural gas prices.

Depreciation, depletion and amortization expense from continuing operations for the first quarter of 2013 totaled $168.4 million, or $21.79 per Boe, an 11% increase per Boe from the first quarter of 2012.

General and administrative expense ("G&A") from continuing operations for the first quarter of 2013 totaled $43.3 million, or $5.60 per Boe, as compared to $28.0 million, or $4.30 per Boe, in the first quarter of 2012. Cash G&A for the first quarter of 2013 totaled $36.5 million and stock-based compensation (non-cash) totaled $6.8 million. The increase in per Boe expense for the first quarter of 2013 over the first quarter of 2012 was primarily due to a 55% increase in absolute G&A expenses, including in 2013 an adjustment to the employee bonus accrual for services rendered in 2012 of approximately $5.9 million, or $0.76 per Boe, and was partially offset by a 19% increase in production from continuing operations.

The Company's cash flow from operating activities (GAAP) was $219.7 million for the first three months of 2013, as compared to $345.9 million for the first three months of 2012, a decrease of 36%. Adjusted cash flows (non-GAAP), which are cash flows from operating activities (GAAP) adjusted for settlements paid on or received from derivatives not designated as hedges, were $225.7 million for the first three months of 2013, as compared to $314.0 million for the first three months of 2012, a decrease of 28%. 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 first quarter of 2013, the Company collected net cash receipts on derivatives not designated as hedges of $6.0 million and the non-cash unrealized mark-to-market loss on derivatives not designated as hedges was $65.0 million. In comparison, the Company made net cash payments of $31.9 million on derivatives not designated as hedges and reported a $126.2 million non-cash unrealized mark-to-market loss on derivatives not designated as hedges in the first quarter of 2012. 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 Price Data" and "Derivatives Information" tables at the end of this press release.

Operations

For the quarter ended March 31, 2013, the Company commenced the drilling of or participated in a total of 190 gross wells (143 operated). The company had a 100% success rate on the 164 wells that were completed in the first quarter of 2013.

The table below summarizes the Company's gross drilling activities by core area for the first quarter of 2013:

1Q 2013

Total Wells

Operated Wells

Completed Wells

New Mexico Shelf

64

31

46

Texas Permian

80

80

79

Delaware Basin

46

32

39

Total

190

143

164

Currently, the Company is operating 31 drilling rigs; 5 of these rigs are drilling in the New Mexico Shelf, 14 are drilling in the Texas Permian and 12 are drilling in the Delaware Basin. Of the Company's 32 operated rigs, 17 are drilling horizontally, including 3 in the New Mexico shelf, 2 in the Texas Permian and 12 in the Delaware Basin.

Delaware Basin

Of the 46 wells drilled in the Delaware Basin,39 were Bone Spring sands wells, 2 were Avalon shale wells and 5 were Wolfcamp shale wells. The Company's net production in the first quarter of 2013 from horizontal Delaware Basin wells averaged approximately 23,200 Boepd, an 87% increase over the first quarter of 2012 and an increase of 10% over the fourth quarter of 2012.

Credit Facility

At March 31, 2013, the Company had borrowings outstanding under the credit facility of $467.4 million, and availability under the credit facility was approximately $2.0 billion.

Derivative Update

The Company maintains an active crude oil hedging program and recently initiated hedge positions on natural gas. In addition, Concho has increased its crude oil basis swaps that limit the Company's exposure to the Midland-to-Cushing basis differential. Concho has hedged the crude oil basis differential from (1) April 2013 to December 2013 at an average price of $1.13 per barrel and (2) January 2014 to June 2014 at an average price of $0.50 per barrel. Please see the "Derivatives Information" table at the end of this press release for more detailed information about the Company's current derivative positions.

Guidance Update

Assuming (1) natural gas prices for the remainder of 2013 range from $4.00 per Mcf to $4.75 per Mcf and (2) the value of the natural gas liquids barrel embedded in the Company's natural gas revenues remains relatively flat to the first quarter of 2013, natural gas differential to the NYMEX natural gas price should range from 120% to 140% compared to previous guidance of 140% to 160%.

Conference Call Information

The Company will host a conference call on Thursday, May 2, 2013 at 9:00 a.m. Central Time to discuss the first quarter 2013 financial and operating results. Interested parties may listen to the conference call via the Company's website at www.concho.com or by dialing (877) 474-9506 (passcode: 10393063). A replay of the conference call will be available on the Company's website or by dialing (888) 286-8010 (passcode: 16568973).

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 filing and risks relating to declines in the prices Concho receives for the Company's 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 the Company's capital resources and liquidity; risks related to the concentration of the Company's operations in the Permian Basin; the results of the Company's hedging program; weather; litigation; shortages of oilfield equipment, services and qualified personnel and increases in costs for such equipment, services and personnel; uncertainties about the Company's ability to replace reserves and economically develop the Company's 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

March 31,

December 31,

(in thousands, except share and per share amounts)

2013

2012

Assets

Current assets:

Cash and cash equivalents

$

974

$

2,880

Accounts receivable, net of allowance for doubtful accounts:

Oil and natural gas

195,524

198,053

Joint operations and other

209,057

202,738

Derivative instruments

7,201

35,942

Deferred income taxes

16,420

-

Prepaid costs and other

17,226

19,269

Total current assets

446,402

458,882

Property and equipment:

Oil and natural gas properties, successful efforts method

9,907,856

9,455,599

Accumulated depletion and depreciation

(1,729,399

)

(1,565,316

)

Total oil and natural gas properties, net

8,178,457

7,890,283

Other property and equipment, net

103,578

103,141

Total property and equipment, net

8,282,035

7,993,424

Deferred loan costs, net

74,355

77,609

Intangible asset - operating rights, net

29,711

30,076

Inventory

20,604

20,611

Noncurrent derivative instruments

2,908

2,769

Other assets

7,383

6,066

Total assets

$

8,863,398

$

8,589,437

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable:

Trade

$

7,333

$

31,144

Related parties

629

185

Bank overdrafts

39,000

24,275

Revenue payable

133,389

162,073

Accrued and prepaid drilling costs

371,976

351,919

Derivative instruments

34,029

1,584

Deferred income taxes

-

8,566

Other current liabilities

183,432

160,340

Total current liabilities

769,788

740,086

Long-term debt

3,264,626

3,101,103

Deferred income taxes

1,220,440

1,186,621

Noncurrent derivative instruments

16,035

12,049

Asset retirement obligations and other long-term liabilities

87,026

83,382

Stockholders' equity:

Common stock, $0.001 par value; 300,000,000 authorized; 104,848,854 and 104,668,427 shares issued at March 31, 2013 and December 31, 2012, respectively

105

105

Additional paid-in capital

1,994,817

1,982,714

Retained earnings

1,520,656

1,490,563

Treasury stock, at cost; 118,591 and 86,861 shares at March 31, 2013 and December 31, 2012, respectively

(10,095

)

(7,186

)

Total stockholders' equity

3,505,483

3,466,196

Total liabilities and stockholders' equity

$

8,863,398

$

8,589,437

Concho Resources Inc.

Consolidated Statements of Operations

Unaudited

Three Months Ended

March 31,

(in thousands, except per share amounts)

2013

2012

Operating revenues:

Oil sales

$

393,208

$

383,963

Natural gas sales

78,919

89,821

Total operating revenues

472,127

473,784

Operating costs and expenses:

Oil and natural gas production

100,845

81,577

Exploration and abandonments

18,407

5,979

Depreciation, depletion and amortization

168,420

127,263

Accretion of discount on asset retirement obligations

1,394

841

General and administrative (including non-cash stock-based compensation of $6,767 and $6,128 for the three months ended March 31, 2013 and 2012, respectively)

43,293

27,979

Loss on derivatives not designated as hedges

59,017

158,093

Total operating costs and expenses

391,376

401,732

Income from operations

80,751

72,052

Other income (expense):

Interest expense

(52,106

)

(35,837

)

Other, net

(109

)

(1,268

)

Total other expense

(52,215

)

(37,105

)

Income from continuing operations before income taxes

28,536

34,947

Income tax expense

(10,977

)

(13,615

)

Income from continuing operations

17,559

21,332

Income from discontinued operations, net of tax

12,534

9,785

Net income

$

30,093

$

31,117

Basic earnings per share:

Income from continuing operations

$

0.17

$

0.21

Income from discontinued operations, net of tax

0.12

0.09

Net income

$

0.29

$

0.30

Weighted average shares used in basic earnings per share

103,631

102,854

Diluted earnings per share:

Income from continuing operations

$

0.17

$

0.21

Income from discontinued operations, net of tax

0.12

0.09

Net income

$

0.29

$

0.30

Weighted average shares used in diluted earnings per share

104,345

103,770

Concho Resources Inc.

Consolidated Statements of Cash Flows

Unaudited

Three Months Ended

March 31,

(in thousands)

2013

2012

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

30,093

$

31,117

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, depletion and amortization

168,420

127,263

Accretion of discount on asset retirement obligations

1,394

841

Exploration and abandonments, including dry holes

4,478

3,102

Non-cash compensation expense

6,767

6,128

Deferred income taxes