Raised Full-Year 2016 Production Growth Target to 5%
Provided 2017 and Long-Term Growth Outlook
Third-Quarter 2016 Highlights
- Delivered quarterly production of 14.1 million Boe, or 152.9 MBoepd, exceeding the high end of the Company’s guidance.
- Achieved record 30-day production rates in the Company’s northern Delaware and southern Delaware Basin assets and record average lateral lengths in each of the Company’s key operating areas.
- Raised full-year 2016 production growth target to 5%. Targeting 20% compound annual growth over the next three years within anticipated cash flows.
- Reduced per-unit lease operating and cash general and administrative expenses 31% and 13%, respectively, year-over-year. Full-year 2016 lease operating expense guidance lowered to $6.00 per Boe.
- Executed a disciplined capital program within cash flows and settlements from derivatives for fifth consecutive quarter.
- Entered into an acquisition for 40,000 net acres, enhancing the Company’s acreage position and drilling inventory in the core of the Midland Basin.
- Redeemed $600 million of 7.0% senior notes due 2021, further strengthening the balance sheet and improving the Company’s cash margin.
- Reported a net loss of $51.1 million, or $0.38 per diluted share. Adjusted net income totaled $43.4 million, or $0.32 per diluted share (non-GAAP).
- Generated $440.1 million of EBITDAX (non-GAAP).
See “Supplemental Non-GAAP Financial Measures” at the end of this press release for a description of non-GAAP measures adjusted net income, adjusted earnings per share and EBITDAX and a reconciliation of these measures to the associated GAAP measure.
Tim Leach, Chairman, Chief Executive Officer and President, commented, “Results for this quarter highlight the strength of our business and relentless focus on enhancing capital efficiency. We have continued to accelerate value for shareholders by driving down cash costs while simultaneously exceeding the high-end of our production guidance range through outstanding operational performance. As a result of drilling efficiencies, completion optimization and portfolio high grading, we are raising our 2016 production growth target to 5%. We also achieved several milestones during the quarter, including consolidating core acreage in the Midland Basin, calling a series of bonds which contributed to reducing absolute debt by more than $1 billion year-over-year and investing within cash flow for the fifth consecutive quarter.
“Structural cost improvement combined with our high-quality drilling inventory has a profound impact on our ability to deliver leading, capital efficient growth over the long term. While we have significant momentum heading into 2017, continued commodity price volatility reinforces our commitment to managing capital spending within anticipated cash flows. We expect to execute a $1.4 billion to $1.6 billion capital program during 2017 and deliver production growth of 17% to 20% over a more robust 2016 production outlook. Further, we are uniquely positioned to generate 20% annualized production growth over the next three years within cash flows due to the quality of our portfolio, demonstrated financial discipline and operational excellence.”
Third-Quarter 2016 Operations Summary
Production for the third quarter of 2016 was 14.1 million barrels of oil equivalent (MMBoe), or an average of 152.9 thousand Boe per day (MBoepd), an increase of approximately 6% from the second quarter of 2016 and above the high end of the Company’s guidance. Average daily crude oil production for the third quarter of 2016 totaled 91.1 thousand barrels, and average daily natural gas production totaled 370.6 million cubic feet (MMcf). Two factors contributed to the Company’s production mix for the third quarter of 2016. Natural gas processing capacity in the Delaware Basin has significantly expanded, with more than one billion cubic feet per day of new capacity online since the beginning of 2016. The timing of completion activity and bringing new wells online also contributed to the production mix for the quarter. The Company expects to complete 60 to 70 gross wells during the fourth quarter of 2016, as compared to 46 gross completions in the third quarter of 2016.
During the third quarter of 2016, Concho averaged 17 rigs, compared to 13 rigs in the second quarter of 2016. Concho started drilling or participating in a total of 72 gross wells (67 operated wells) and completed 46 gross wells during the third quarter of 2016. The table below summarizes the Company’s drilling activity by core area for the third quarter of 2016.
Number of Wells
Number of Wells
|New Mexico Shelf||13||13||19|
Northern Delaware Basin
Concho added 22 new horizontal wells in the northern Delaware Basin with at least 30 days of production as of the end of the third quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 1,428 Boe per day (Boepd) (69% oil) and 1,776 Boepd, respectively. The average lateral length for these wells was 5,532 feet. The Company currently has four horizontal rigs in the northern Delaware Basin.
High-Impact Red Hills Area Delivers Strong Performance
Concho’s large position in the northern Delaware Basin is characterized by a thick, resource-rich hydrocarbon column that lends itself to multi-zone development. The Company refers to its acreage in southern Lea County as the Red Hills area, where Concho is targeting the oil-prone Avalon Shale, Bone Spring Sands and Wolfcamp. The Company’s four-well, 80-acre spacing test, the Monet, has achieved outstanding performance with cumulative production of more than 690 MBoe (67% oil) over the first 145 days of production. The Company also recently conducted a two-well test targeting the Upper Wolfcamp Sands in Red Hills. The wells, the Viking Helmet State 002H and the Stove Pipe Federal 002H, were drilled to an average lateral length of 6,826 feet and produced at an average peak 30-day rate of 2,385 Boepd (84% oil). The Company plans to continue developing the Upper Wolfcamp Sands with an emphasis on optimizing lateral placement and development spacing.
Southern Delaware Basin
Concho added five new horizontal wells in the southern Delaware Basin with at least 30 days of production as of the end of the third quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 1,505 Boepd (73% oil) and 1,751 Boepd, respectively. The average lateral length for these wells was 7,474 feet. The Company currently has four horizontal rigs in the southern Delaware Basin.
Successful Delineation of the 3rd Bone Spring
Building on success from an initial 3rd Bone Spring test completed in the second quarter of 2016, Concho added two new 3rd Bone Spring horizontal wells during the third quarter of 2016. These wells were drilled to an average lateral length of 4,875 feet and produced at an average peak 30-day rate of 1,909 Boepd (64% oil).
Concho added two new horizontal wells in the Midland Basin with at least 30 days of production as of the end of the third quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 1,070 Boepd (85% oil) and 1,420 Boepd, respectively. The average lateral length for these wells was 10,332 feet. The Company currently has eight horizontal rigs in the Midland Basin.
Outstanding Performance from Density Pilot
Concho recently completed an eight-well stacked density pilot, with four wells targeting the Lower Spraberry and four wells targeting the Wolfcamp B. Wells in each zone were spaced at approximately 80 acres and drilled to an average lateral length of 9,513 feet. Cumulative production from the density pilot totaled approximately 260 MBoe (85% oil) over the first 30 days of production.
New Mexico Shelf
In the New Mexico Shelf, Concho added seven new horizontal wells with at least 30 days of production as of the end of the third quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 414 Boepd (86% oil) and 562 Boepd, respectively. The average lateral length for these wells was 4,778 feet. The Company currently has two horizontal rigs in the New Mexico Shelf.
Third-Quarter 2016 Financial Summary
Concho’s average realized price for oil and natural gas for the third quarter of 2016, excluding the effect of commodity derivatives, was $30.61 per Boe, compared with $33.74 per Boe for the third quarter of 2015.
Net loss for the third quarter of 2016 was $51.1 million, or $0.38 per diluted share, compared to net income of $179.7 million, or $1.49 per diluted share, for the third quarter of 2015. Adjusted net income (non-GAAP), which excludes non-cash and unusual items, for the third quarter of 2016 was $43.4 million, or $0.32 per diluted share, compared with adjusted net income (non-GAAP) of $39.3 million, or $0.33 per diluted share, for the third quarter of 2015.
EBITDAX (non-GAAP) for the third quarter of 2016 totaled $440.1 million, compared to $446.2 million for the third quarter of 2015.
Cash flows generated from operating activities for the nine months ended September 30, 2016, totaled $437.3 million, compared with $760.6 million for the same period last year. Cash flows from operating activities and net settlements received from derivatives were $1 billion for the nine months ended September 30, 2016, as compared to $1.2 billion for the same period last year.
See “Supplemental Non-GAAP Financial Measures” at the end of this press release for a description of non-GAAP measures adjusted net income, adjusted earnings per share and EBITDAX and a reconciliation of these measures to the associated GAAP measures.
Financial Position and Liquidity
Concho continues to reinforce its strong financial position. During the third quarter of 2016, the Company redeemed the entire outstanding principal amount of $600 million 7.0% Senior Notes due January 2021. At September 30, 2016, Concho had cash of approximately $1.2 billion and long-term debt of $2.7 billion, which represents an approximately $1.1 billion reduction in long-term debt year-over-year.
Pro forma for the $1.2 billion cash consideration for the previously announced closing of the acquisition from Reliance Energy, Concho had cash of approximately $65 million and long-term debt of $2.7 billion at September 30, 2016. Additionally, the Company’s pro forma liquidity totaled approximately $2.6 billion as of September 30, 2016, which reflects its undrawn revolving credit facility with total capacity of $2.5 billion.
For the fourth quarter of 2016, Concho expects production to average between 164 MBoepd and 167 MBoepd.
The Company raised its full-year 2016 production growth target to 5%. Concho expects its total capital spend for 2016 to be $1.3 billion, within the Company’s guidance range of $1.1 billion to $1.3 billion and funded entirely within after-tax cash flow inclusive of settlements from derivatives. The capital plan excludes acquisitions, but includes approximately $30 million of drilling and completion capital attributable to the recently acquired assets in the Midland Basin. In addition, Concho updated its full-year 2016 outlook for certain items. The following table summarizes the Company’s current guidance for those items, as compared to the Company’s prior guidance.
|Full Year 2016|
|Production growth||1% – 3%||5%|
|Oil mix||60% – 64%||61%|
|Lease operating expense and workover costs (per Boe)||$6.50 – $7.00||$6.00|
|Interest expense (millions)||$205 – $215||$200|
|Capital plan (excluding acquisitions) (billions)||$1.1 – $1.3||$1.3|
Scale and diversity within the Permian Basin enable Concho to efficiently allocate capital with significant operational flexibility while continuously driving capital efficiency gains.
For 2017, the Company’s Board approved a capital budget of $1.6 billion. The Company remains committed to investing within cash flows, and based on the current commodity price outlook, expects capital spending to range between $1.4 billion and $1.6 billion. Concho expects to grow oil volumes by more than 20% year-over-year and total company production growth of 17% to 20%. Approximately 90% of capital will be directed to drilling and completion activity.
The Company’s northern Delaware Basin position continues to benefit from Concho’s enhanced completion techniques. The Company plans to allocate approximately 35% of total drilling capital to the northern Delaware Basin and operate an average of seven rigs in 2017, as compared to four rigs during 2016. The average lateral length for wells completed in 2017 is expected to increase 30% year-over-year to approximately 7,000 feet.
Concho plans to direct approximately 25% of total drilling capital to the southern Delaware Basin, where the Company plans to operate an average of four rigs during 2017. The Company’s targeted bolt-on acquisition efforts facilitate more efficient long-lateral development, and as a result, the Company expects the average lateral length for wells completed in 2017 to be approximately 10,000 feet, up 25% year-over-year.
Concho’s drilling program in the Midland Basin generates some of the strongest returns in its portfolio due to the Company’s consolidated core position, field-wide infrastructure systems and drilling and completion efficiencies. The Company plans to invest approximately 30% of its drilling capital to the Midland Basin to run an average of five rigs. The working interest of the drilling program is expected to average 70%, up from an average working interest of 50% in 2016 primarily due to the Company’s portfolio-enhancing acquisition of assets from Reliance Energy. The average lateral length for wells drilled in 2017 is expected to exceed 10,000 feet.
The New Mexico Shelf is a prolific oil play that yields repeatable results and stable cash flows. The Company plans to allocate approximately 10% of drilling capital to the New Mexico Shelf to run a two-rig program during 2017.
The Company’s 2017 capital program excludes acquisitions and is subject to change depending upon a number of factors, including commodity prices and industry conditions.
Commodity Derivatives Update
The Company enters into commodity derivatives to manage its exposure to commodity price fluctuations. For 2017, Concho has crude oil swap contracts covering approximately 67.2 MBopd at a weighted average price of $54.60 per Bbl. Please see the table under “Derivatives Information” below for detailed information about the Company’s current derivatives positions.
Addition to Management Group
Megan P. Hays has been promoted to Vice President of Investor Relations and will continue to lead the Company’s investor relations department. Mrs. Hays joined Concho in 2014 as Director of Investor Relations. She has over 10 years of experience in the oil and natural gas industry, beginning her career with Approach Resources in 2006. From January 2007 to July 2014, Mrs. Hays led Approach’s investor relations effort as well as its financial and capital markets activities. Mrs. Hays holds a B.A. in Political Science and International Relations from Texas Christian University.
Concho will discuss third quarter 2016 results on a conference call tomorrow, November 9, 2016, at 8:30 AM CT (9:30 AM ET). The telephone number and passcode to access the conference call are provided below:
Dial-in: (855) 445-9894
Intl. dial-in: (330) 863-3281
Participant Passcode: 92647461
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.
Concho Resources Inc.
Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development, exploration and production 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 the Company’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 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. Forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Company’s future financial position, operations, performance, business strategy, oil and natural gas reserves, drilling program, capital expenditure budget, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, derivative activities and potential financing. The words “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “could,” “may,” “foresee,” “plan,” “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, 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 risk factors discussed or referenced in the Company’s most recent Annual Report on Form 10-K and in the Company’s Quarterly Reports on Form 10-Q for the quarters ended June 30, 2016 and September 30, 2016; risks relating to declines in the prices the Company receives, or sustained depressed prices the Company receives, for its oil and natural gas; uncertainties about the estimated quantities of oil and natural gas reserves; drilling and operating risks; the adequacy of the Company’s capital resources and liquidity including, but not limited to, access to additional borrowing capacity under its credit facility; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing and the export of oil and natural gas; the impact of potential changes in the Company’s credit ratings; environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater contamination; difficult and adverse conditions in the domestic and global capital and credit markets; risks related to the concentration of the Company’s operations in the Permian Basin of southeast New Mexico and west Texas; disruptions to, capacity constraints in or other limitations on the pipeline systems that deliver the Company’s oil, natural gas liquids and natural gas and other processing and transportation considerations; the costs and availability of equipment, resources, services and personnel required to perform the Company’s drilling and operating activities; potential financial losses or earnings reductions from the Company’s commodity price risk-management program; risks and liabilities associated with acquired properties or businesses; uncertainties about the Company’s ability to successfully execute its business and financial plans and strategies; uncertainties about the Company’s ability to replace reserves and economically develop its current reserves; general economic and business conditions, either internationally or domestically; competition in the oil and natural gas industry; uncertainty concerning the Company’s assumed or possible future results of operations; 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|
|September 30,||December 31,|
|(in thousands, except share and per share amounts)||2016||2015|
|Cash and cash equivalents||$||1,158,939||$||228,550|
|Accounts receivable, net of allowance for doubtful accounts:|
|Oil and natural gas||202,865||203,972|
|Joint operations and other||207,351||190,608|
|Prepaid costs and other||30,480||38,922|
|Total current assets||1,718,810||1,314,550|
|Property and equipment:|
|Oil and natural gas properties, successful efforts method||16,769,269||15,846,307|
|Accumulated depletion and depreciation||(7,403,505||)||(5,047,810||)|
|Total oil and natural gas properties, net||9,365,764||10,798,497|
|Other property and equipment, net||181,267||178,450|
|Total property and equipment, net||9,547,031||10,976,947|
|Funds held in escrow||81,250||–|
|Deferred loan costs, net||12,078||15,585|
|Intangible asset – operating rights, net||24,597||25,693|
|Noncurrent derivative instruments||–||167,038|
|Liabilities and Stockholders’ Equity|
|Accounts payable – trade||$||22,398||$||13,200|
|Accrued and prepaid drilling costs||326,184||228,523|
|Other current liabilities||109,114||184,910|
|Total current liabilities||572,648||596,420|
|Deferred income taxes||862,766||1,630,373|
|Noncurrent derivative instruments||53,840||–|
|Asset retirement obligations and other long-term liabilities||145,950||140,344|
Common stock, $0.001 par value; 300,000,000 authorized; 142,562,011 and
129,444,042 shares issued at September 30, 2016 and December 31, 2015, respectively
|Additional paid-in capital||6,229,586||4,628,390|
Treasury stock, at cost; 429,084 and 306,061 shares at September 30, 2016 and
December 31, 2015, respectively
|Total stockholders’ equity||7,194,583||6,942,551|
|Total liabilities and stockholders’ equity||$||11,570,634||$||12,641,876|
|Concho Resources Inc.|
|Consolidated Statements of Operations|
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|(in thousands, except per share amounts)||2016||2015||2016||2015|
|Natural gas sales||82,452||71,511||181,028||201,984|
|Total operating revenues||430,548||463,474||1,110,411||1,414,421|
|Operating costs and expenses:|
|Oil and natural gas production||103,575||138,125||328,756||405,925|
|Exploration and abandonments||10,344||14,791||54,478||32,566|
|Depreciation, depletion and amortization||299,209||329,467||890,257||901,474|
|Accretion of discount on asset retirement obligations||1,769||1,853||5,226||5,894|
|Impairments of long-lived assets||–||7,588||1,524,645||7,588|
|General and administrative (including non-cash stock-based compensation of|
|$14,728 and $16,327 for the three months ended September 30, 2016 and|
|2015, respectively, and $43,201 and $47,272 for the nine months ended|
|September 30, 2016 and 2015, respectively)||53,505||60,052||160,657||179,776|
|(Gain) loss on derivatives||(41,186||)||(413,130||)||175,666||(381,071||)|
|(Gain) loss on disposition of assets, net||755||(32||)||(109,174||)||1,588|
|Total operating costs and expenses||427,971||138,714||3,030,511||1,153,740|
|Income (loss) from operations||2,577||324,760||(1,920,100||)||260,681|
|Other income (expense):|
|Loss on extinguishment of debt||(27,670||)||–||(27,670||)||–|
|Total other expense||(84,097||)||(53,228||)||(199,606||)||(168,678||)|
|Income (loss) before income taxes||(81,520||)||271,532||(2,119,706||)||92,003|
|Income tax (expense) benefit||30,374||(91,873||)||782,395||(25,315||)|
|Net income (loss)||$||(51,146||)||$||179,659||$||(1,337,311||)||$||66,688|
|Earnings per share:|
|Basic net income (loss)||$||(0.38||)||$||1.49||$||(10.18||)||$||0.56|
|Diluted net income (loss)||$||(0.38||)||$||1.49||$||(10.18||)||$||0.56|
Concho Resources Inc.
Megan P. Hays, 432-685-2533
Vice President of Investor Relations
Mary Tennant, 432-221-0477
Senior Financial Analyst