Exceeds Crude Oil and Total Production Growth Guidance
Increases Total Resource Potential to an Estimated 10 Billion Barrels of Oil Equivalent
Provides New Long-Term Growth Outlook to 2020
Accelerates Value with Recent Portfolio Management Activities
MIDLAND, Texas–(BUSINESS WIRE)–Concho Resources Inc. (NYSE: CXO) (the “Company” or “Concho”) today reported financial and operating results for fourth-quarter and full-year 2017.
Fourth-Quarter & Full-Year 2017 Highlights
- For fourth quarter, delivered crude oil production of 130 MBopd and total production of 211 MBoepd, exceeding the high end of the Company’s guidance range.
- For 2017, grew crude oil production 29% and total production 28% on a $1.7 billion capital program, excluding acquisitions, which was fully funded by cash flows from operations.
- Reported fourth quarter net income of $267 million, or $1.79 per diluted share. Adjusted net income totaled $98 million, or $0.66 per diluted share (non-GAAP). For 2017, net income totaled $956 million, or $6.41 per diluted share, and adjusted net income was $311 million, or $2.09 per diluted share (non-GAAP).
- Generated $513 million of EBITDAX (non-GAAP) in the fourth quarter and $1.9 billion for 2017.
- Delivered outstanding results from the Company’s large-scale development projects in the Northern and Southern Delaware Basin and in the Midland Basin.
- Increased estimated proved reserves 17% to 840 MMBoe, driven by a 26% increase in proved developed reserves to 588 MMBoe.
- Achieved a 275% reserves replacement ratio at $8.68 per Boe proved developed finding costs.
2018 Outlook & Recent Events
- For 2018, expecting crude oil production growth of approximately 20% and total production growth of 16% to 20% on a $2 billion capital program at the midpoint. The capital program is consistent with Concho’s strategy of delivering returns-based, capital-efficient growth within cash flows from operations.
- Provided new three-year production growth outlook of 20% CAGR over the 2017 to 2020 time period.
- Enhanced asset position and accelerated value realization with recent portfolio management actions. Divestiture proceeds of $280 million reinforce balance sheet strength and flexibility. Strategic asset trade enhances core leasehold in Midland Basin and New Mexico Shelf.
See “Supplemental Non-GAAP Financial Measures” and “Supplemental Measures” at the end of this press release for a description of non-GAAP measures adjusted net income, adjusted earnings per share and EBITDAX as well as a reconciliation of these measures to the associated GAAP measure. An explanation of how we calculate and use the reserves replacement ratio and proved developed finding costs also can be found at the end of the press release.
Tim Leach, Chairman and Chief Executive Officer, commented, “The fourth quarter was an excellent end to a great year for Concho. Our operational and financial performance demonstrated our ability to consistently execute, control costs and capitalize on opportunities that strengthen our competitive position. For the year, crude oil production exceeded our target, increasing 29% year-over-year, and our disciplined capital program was fully funded by operating cash flow. We have a powerful portfolio that continues to outperform. The depth and quality of our resource base is unmatched throughout our history and allows us to assemble multi-year programs capable of delivering premium value within cash flow. We continue to complement our development program with active portfolio management that accelerates value and improves capital efficiency. Our high-quality resource base, scale advantage and execution strength uniquely position Concho to navigate a dynamic operating environment while maximizing returns and building sustainable value for our shareholders.”
Fourth-Quarter and Full-Year 2017 Operations Summary
Production for fourth-quarter 2017 was 19 million barrels of oil equivalent (MMBoe), or an average of 211 thousand Boe per day (MBoepd), an increase of approximately 28% from fourth-quarter 2016 and 9% from third-quarter 2017. Average daily crude oil production for fourth-quarter 2017 totaled 130 thousand barrels per day (MBopd), an increase of approximately 30% from fourth-quarter 2016 and 9% from third-quarter 2017. Natural gas production for fourth-quarter 2017 totaled 487 million cubic feet per day (MMcfpd).
For full-year 2017, total production increased 28% to 70 MMBoe, or 193 MBoepd, driven by a 29% increase in crude oil production to 119 MBopd. Natural gas production for full-year 2017 was 441 MMcfpd.
During fourth-quarter 2017, Concho averaged 16 rigs, compared to 19 rigs in third-quarter 2017. The table below summarizes the Company’s gross drilling and completion activity by core area for fourth-quarter and full-year 2017.
|Number of||Number of||Number of|
|Operated Wells||Wells||Operated Wells|
|Northern Delaware Basin||38||149||20||83||30||126||14||65|
|Southern Delaware Basin||14||61||11||44||24||53||17||36|
|New Mexico Shelf||5||43||4||32||15||48||5||35|
The Company is currently running 19 rigs, including eight rigs in the Northern Delaware Basin, six rigs in the Southern Delaware Basin and five rigs in the Midland Basin. Additionally, the Company is currently utilizing six completion crews.
Northern Delaware Basin
In the Northern Delaware Basin, Concho added 24 wells with at least 60 days of production as of the end of fourth-quarter 2017. The average 30-day peak and average 60-day peak rates for these wells were 1,805 Boepd (68% oil) and 1,703 Boepd (67% oil), respectively. The Company also achieved a record average lateral length of 6,685 feet during fourth-quarter 2017.
Maximizing Recovery and Returns with Large-Scale Development Projects
Concho continues to see strong performance from the Vast and Windward projects, two large-scale development projects in the Red Hills area. The Vast project includes seven wells targeting the Wolfcamp Sands and Wolfcamp A Shale, and the Windward project includes eight wells targeting the Avalon Shale. The Vast and Windward projects have produced an aggregate 3 MMBoe (71% oil) in the first four months of their production.
From these projects, Concho is collecting valuable data that helps the Company optimize lateral placement, completion design and facilities planning. In addition, both projects delivered improvements in drilling days and stages completed per day.
Southern Delaware Basin
In the Southern Delaware Basin, Concho added three wells targeting the Wolfcamp A with at least 60 days of production as of the end of fourth-quarter 2017. The average 30-day peak and average 60-day peak rates for these wells were 1,644 Boepd (71% oil) and 1,474 Boepd (71% oil), respectively, and the average lateral length of 10,354 feet set a Company record for the Southern Delaware Basin.
Optimizing Development of Stacked Resource
Concho also recently completed a large-scale, multi-well project in the Southern Delaware Basin. The Brass Monkey project, originally an eight-well project, includes 10 wells testing simultaneous development of the 3rd Bone Spring, Wolfcamp A and Wolfcamp B with an average lateral length of 9,700 feet. The average 30-day peak rate for the project was 26 MBoepd (73% oil).
Concho added six wells targeting the Wolfcamp A and Wolfcamp B in the Midland Basin during fourth-quarter 2017. The average 30-day peak and average 60-day peak rates for these wells were 1,272 Boepd (82% oil) and 1,195 Boepd (83% oil), respectively, and the average lateral length of 11,656 feet set a Company record for the Midland Basin.
Improving Capital Productivity from Technology Deployed at the Mabee Ranch Project
Concho recently completed the 13-well, two-mile Mabee Ranch project located in Andrews County, Texas. The early production results are strong, as the Mabee Ranch project has achieved an initial 24-hour peak rate of approximately 15 MBoepd (85% oil). Additionally, Concho is utilizing leading-edge technologies, including fiber optic monitoring, to collect valuable proprietary data with real-time and long-term implications for full-field optimization. The Company expects to transfer these techniques to other assets across the portfolio.
Fourth-Quarter and Full-Year 2017 Financial Summary
Concho’s average realized price for crude oil and natural gas for fourth-quarter 2017, excluding the effect of commodity derivatives, was $52.84 per Bbl and $3.33 per Mcf, respectively, compared with $45.66 per Bbl and $2.93 per Mcf, respectively, for fourth-quarter 2016. For 2017, Concho’s average realized price for crude oil and natural gas, excluding the effect of commodity derivatives, was $48.13 per Bbl and $3.07 per Mcf, respectively, compared with $39.90 per Bbl and $2.23 per Mcf, respectively, for 2016.
Net income for fourth-quarter 2017 was $267 million, or $1.79 per diluted share, compared to net loss of $125 million, or $0.86 per diluted share, for fourth-quarter 2016. Adjusted net income (non-GAAP), which excludes non-cash and unusual items, for fourth-quarter 2017 was $98 million, or $0.66 per diluted share, compared with adjusted net income (non-GAAP) of $28 million, or $0.20 per diluted share, for fourth-quarter 2016.
Net income for full-year 2017 was $956 million, or $6.41 per diluted share, compared to net loss of $1.5 billion, or $10.85 per diluted share, for full-year 2016. Adjusted net income (non-GAAP), which excludes non-cash and unusual items, for full-year 2017 was $311 million, or $2.09 per diluted share, compared with adjusted net income (non-GAAP) of $111 million, or $0.81 per diluted share, for full-year 2016.
Net income for fourth-quarter and full-year 2017 reflected income tax changes related to the Tax Cuts and Jobs Act. Due to the reduction of the U.S. federal corporate income tax rate and subsequent re-measurement of the Company’s net deferred tax liability, the Company recorded a provisional non-cash decrease to its income tax provision of $398 million and a corresponding provisional reduction to its net non-current deferred tax liability. For 2018, the Company estimates an effective tax rate of approximately 25%, including state taxes, before discrete items.
EBITDAX (non-GAAP) for fourth-quarter 2017 totaled $513 million, compared to $396 million for fourth-quarter 2016. EBITDAX (non-GAAP) for full-year 2017 was $1.9 billion, compared to $1.6 billion for full-year 2016.
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 as well as a reconciliation of these measures to the associated GAAP measures.
2017 Proved Reserves and Resource Potential
At December 31, 2017, Concho’s estimated proved reserves totaled 840 MMBoe, an increase of 17% from year-end 2016. The Company’s proved reserves are approximately 60% crude oil and 40% natural gas. Proved developed reserves totaled 588 MMBoe, an increase of 26% from year-end 2016. The Company’s proved developed reserves represent approximately 70% of total proved reserves.
During 2017, Concho added 194 MMBoe of proved reserves primarily from drilling and completion operations, resulting in a reserve replacement ratio of 275%. The Company’s proved developed finding and development cost was $8.68 per Boe for 2017.
Concho estimates current net resource potential to be approximately 10 billion Boe, including total proved reserves, an increase of 25% from year-end 2016. Concho’s current resource potential is attributable to approximately 21,000 gross horizontal drilling locations, underscoring the Company’s large-scale horizontal development potential in the Permian Basin.
For a summary of estimated proved reserves, please see “Estimated Year-End Proved Reserves” below, and for an explanation of how the Company calculates and uses the reserves replacement ratio and finding and development costs, please see “Supplemental Measures” below.
Active Portfolio Management
During first-quarter 2018, Concho completed the sale of non-core leasehold in Ward and Reeves Counties, Texas, for approximately $280 million. The leasehold covers approximately 40,000 gross (20,000 net) acres. These assets were primarily non-operated with low working interest and not conducive to long-lateral development. Proved reserves and net production associated with these assets was minimal.
Additionally, the Company recently completed a strategic trade with a large integrated oil company. For Concho, the trade enhances its core development area in Mabee Ranch in the Midland Basin and adds working interests to certain operated properties in Upton County, Texas, and in the New Mexico Shelf. In the trade, Concho conveyed its 32,000 acre checker-board leasehold position in Culberson County, Texas.
These portfolio optimization activities accelerate value, enhance Concho’s core leasehold position and further improve capital allocation.
Financial Position and Liquidity
At December 31, 2017, Concho had total long-term debt of $2.7 billion, including approximately $320 million of borrowings outstanding under its credit facility. Adjusted for divestiture proceeds received in first-quarter 2018, the Company had total long-term debt of $2.5 billion at December 31, 2017.
High-quality acreage and scale within the Permian Basin enables Concho to efficiently allocate capital while continuing to advance manufacturing-style development with leading-edge drilling and completion techniques.
Concho expects 2018 capital spending to be at the midpoint of its capital guidance range of $1.9 billion to $2.1 billion, which reflects the Company’s current outlook for service cost inflation. The 2018 capital program is expected to be funded with cash flows from operations and generate 20% crude oil growth and 16% to 20% total production growth year-over-year. Approximately 93% of the capital program is allocated to drilling and completion activities, with approximately 65% of that capital directed towards large-scale manufacturing projects. The Company’s 2018 capital program is allocated among the following areas: Northern Delaware Basin (40%), Southern Delaware Basin (25%), Midland Basin (30%) and the New Mexico Shelf (5%).
Detailed guidance for the first quarter and full-year 2018 is provided under “2018 Guidance” at the end of the release. The Company’s capital guidance for 2018 excludes acquisitions and is subject to change without notice depending upon a number of factors, including commodity prices and industry conditions.
The Company provided a new three-year production growth outlook. Concho expects to grow total production at a compound annual growth rate of 20% from 2017 to 2020. The outlook reflects the Company’s high-quality production base and strong operating momentum. Additionally, the Company expects to deliver this growth within cash flows from operations at an average crude oil price (WTI) in the low-to-mid $50 per barrel range over the duration of the outlook.
As with the Company’s 2018 outlook, growth over the three-year period from 2017 to 2020 is the output of reinvesting high-margin cash flow into its drilling program. To facilitate execution of the program, Concho has secured sand and associated transportation logistics. The sand will be sourced from several regional mines in the Permian Basin. In addition to reducing operational risks across the supply chain, the Company expects to capture well cost savings from locking in a key component of completion operations.
Commodity Derivatives Update
The Company enters into commodity derivatives to manage its exposure to commodity price fluctuations. For 2018, Concho has crude oil swap contracts covering approximately 105 MBopd at a weighted average price of $52.98 per Bbl. Please see the table under “Derivatives Information” below for detailed information about the Company’s current derivatives positions.
Concho will host a conference call tomorrow, February 21, 2018, at 8:00 AM CT (9:00 AM ET) to discuss fourth quarter and full-year 2017 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: 2989439
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.
The Company will participate in the following upcoming conferences:
|Conference Date||Conference||Presentation Time|
|March 5, 2018||Raymond James 39th Annual Institutional Investors Conference||8:15 AM CT|
|March 26, 2018||Scotia Howard Weil 46th Annual Energy Conference||10:55 AM CT|
The presentations will be available on the Company’s website on or prior to the day of the first conference.
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.