Quarterly / Earnings Reports | Second Quarter (2Q) Update

Concho Resources Talks Q2 Results, Production

By: Concho Resources, Inc.

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Concho Resources Inc. reported financial and operating results for second-quarter 2019.

Second-Quarter 2019 Highlights

• Exceeded second-quarter guidance with production of 329 MBoepd.
• Delivered strong execution towards full-year 2019 capital program.
• Reported a net loss of $97 million, or $0.48 per share. Adjusted net income (non-GAAP) totaled $139 million, or $0.69 per share.
• Generated $717 million of adjusted EBITDAX (non-GAAP).

Tim Leach, Chairman and Chief Executive Officer, commented, "The second quarter continued our track record of strong execution as we delivered production, capital investment and operating costs in-line with or better than our targets, highlighting the fundamental strength of our assets and development approach."

Second-Quarter 2019 Summary

Production for second-quarter 2019 was approximately 30 million barrels of oil equivalent (MMBoe), or an average of 329 thousand Boe per day (MBoepd). Average daily oil production for second-quarter 2019 totaled 206 thousand barrels per day (MBopd). Natural gas production for second-quarter 2019 totaled 737 million cubic feet per day (MMcfpd).

Concho's average realized price for oil and natural gas for second-quarter 2019, excluding the effect of commodity derivatives, was $56.02 per Bbl and $1.16 per Mcf, respectively, compared with $60.98 per Bbl and $3.19 per Mcf, respectively, for second-quarter 2018.

Net loss for second-quarter 2019 was $97 million, or $0.48 per share, compared with net income of $137 million, or $0.92 per share, for second-quarter 2018. Excluding certain non-cash and special items, second-quarter 2019 adjusted net income was $139 million, or $0.69 per share, compared with adjusted net income of $185 million, or $1.24 per share, for second-quarter 2018. Special items for the quarter included a non-cash asset impairment charge of $868 million to the carrying value of the Company's New Mexico Shelf assets.

During the quarter, Concho generated adjusted EBITDAX of $717 million, compared with $592 million for second-quarter 2018.

Cash flow from operating activities was $779 million for the quarter, including $111 million in working capital changes. Operating cash flow before working capital changes (non-GAAP) was $668 million.

During second-quarter 2019, Concho received $289 million of cash proceeds from the completion of the previously announced sale by Oryx Southern Delaware Holdings, LLC of its interests in the Oryx I oil gathering and transportation system. The Company used a portion of the proceeds to repay borrowings under its credit facility. At June 30, 2019, Concho had long-term debt of approximately $4.4 billion, including $397 million of outstanding borrowings under its credit facility.

Costs incurred for exploration and development activities for second-quarter 2019 totaled $785 million. During the quarter, Concho averaged 26 rigs, compared with 33 rigs in first-quarter 2019. The Company is currently running 18 rigs, including 11 rigs in the Delaware Basin and seven rigs in the Midland Basin. Additionally, the Company is currently utilizing seven completion crews. See the table under "Operational Activity" below for detailed information about the Company's drilling and completion activity by operating area for second-quarter 2019.

Large-Scale Projects Accelerating Development Optimization

In the Delaware Basin, Concho completed the 23-well Dominator project, a well-spacing test targeting multiple landings within the Upper Wolfcamp. The average lateral length for the project was approximately 4,400 feet, and all 23 wells were drilled, completed and put on production safely and ahead of schedule. While the Dominator project accelerated the Company's understanding across the project lifecycle (logistics, lateral placement, well spacing and facilities design), performance from the project indicates the well spacing was too tight. The Company has already incorporated learnings from this project into its second half of 2019 program and future Delaware Basin projects.

In the Midland Basin, Concho put on production the Marion Benge project, consisting of 18 wells targeting the Spraberry and Wolfcamp zones with an average lateral length of 9,900 feet. The Marion Benge project has demonstrated strong initial performance.

Outlook

"We have made near-term adjustments to our operational plans that reinforce our commitment to capital discipline and maximizing free cash flow. Moderating activity and building an inventory of drilled but uncompleted wells keeps us on track with our full year capital plan, preserves our balance sheet and positions the company for an inflection in free cash flow and momentum heading into 2020. This momentum combined with our high-quality asset base provide us confidence in our strategy to drive differentiated growth, expand free cash flow and strengthen returns over the long term," commented Tim Leach.

The Company expects to produce between 316 MBoepd to 322 MBoepd in third-quarter 2019. The Company's oil mix is expected to be approximately 63% in the second half of 2019 as fewer new wells are planned to come online. Additionally, due to weak natural gas and natural gas liquids pricing, the Company reduced its full-year 2019 natural gas price realization guidance to a range of 60% to 80% of NYMEX Henry Hub and expects to trend towards the low end of the range in the third quarter of 2019.

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.