Concho Resources Inc. Reports Second-Quarter 2018 Results

Concho Resources Inc. (NYSE: CXO) (the “Company” or “Concho”)
today reported financial and operating results for second-quarter 2018.

Second-Quarter 2018 Highlights

Recent Events & 2018 Outlook

See “Supplemental Non-GAAP Financial Measures” at the end of this press
release for a description of non-GAAP measures adjusted net income,
adjusted net income per diluted share and EBITDAX as well as a
reconciliation of these measures to the associated GAAP measure.

Tim Leach, Chairman and Chief Executive Officer, commented, “We
delivered a solid second quarter as our teams advance large-scale
development across the portfolio. Through our outstanding asset
performance and focus on cost control, we continue to drive strong cash
flow that again exceeded our drilling and completion capital. The RSP
transaction is consistent with our strategy of acquiring large,
contiguous, high-quality assets in the Permian Basin. With the
transaction complete, we are excited about bringing together the talent
from both organizations to capture the benefits of this powerful

Second-Quarter 2018 Operations Summary

Production for second-quarter 2018 was 21 million barrels of oil
equivalent (MMBoe), or an average of 229 thousand Boe per day (MBoepd),
an increase of approximately 24% from second-quarter 2017. Average daily
crude oil production for second-quarter 2018 totaled 143 thousand
barrels per day (MBopd), an increase of approximately 26% from
second-quarter 2017. Natural gas production for second-quarter 2018
totaled 515 million cubic feet per day (MMcfpd).

During second-quarter 2018, Concho averaged 21 rigs, compared to 20 rigs
in first-quarter 2018. The table below summarizes the Company’s gross
drilling and completion activity by core area for second-quarter 2018.

Number of Wells Drilled

Number ofOperated Wells Drilled

Number of Wells Completed

Number ofOperated WellsCompleted

Following the closing of the RSP transaction, Concho is running 32
horizontal rigs, including 16 rigs in the Northern Delaware Basin, six
rigs in the Southern Delaware Basin, nine rigs in the Midland Basin and
one in the New Mexico Shelf. Additionally, Concho is currently utilizing
ten completion crews.

Northern Delaware Basin

In the Northern Delaware Basin, Concho added 16 wells with at least 60
days of production as of the end of second-quarter 2018. The average
30-day and 60-day peak rates for these wells were 1,987 Boepd (73% oil)
and 1,859 Boepd (72% oil), respectively, from an average lateral length
of 7,326 feet.

Quickly Advancing Large-Scale Development

Following the strong success of the Vast and Windward development
projects, Concho recently completed a four-well development project, the
Columbus, targeting the Wolfcamp A zone with long-laterals. The average
per well 30-day peak rate for the Columbus project was 3,163 Boepd (77%
oil) from an average lateral length of approximately 9,550 feet.

Current drilling activity is also focused on large-scale development of
the Company’s assets in the Northern Delaware Basin, with nine out of 16
rigs working on multi-well projects. The largest project underway is the
Dominator, which consists of 23 wells targeting five distinct landings
within a single section. Concho is currently running six rigs on this

Southern Delaware Basin

In the Southern Delaware Basin, Concho added five wells with at least 60
days of production as of the end of second-quarter 2018. The average
30-day and 60-day peak rates for these wells were 1,463 Boepd (80% oil)
and 1,297 Boepd (80% oil), respectively. The lateral length for these
wells averaged 7,461 feet.

Midland Basin

In the Midland Basin, Concho added 21 wells with at least 60 days of
production as of the end of second-quarter 2018. The average 30-day and
60-day peak rates for these wells were 1,294 Boepd (86% oil) and 1,137
Boepd (86% oil), respectively, with an average lateral length of 9,800

Maximizing Scale Advantage

Several factors underpin Concho’s shift to manufacturing mode in the
Midland Basin, including the large, contiguous nature of the Company’s
assets, Concho’s strategic infrastructure systems and the broad extent
of the Company’s impressive well performance.

The Vanessa and Karen project highlights Concho’s success with
optimizing lateral placement and completion design to improve project
economics and performance. The project includes a total of six wells.
The average per well 30-day and 60-day peak rates for these wells were
1,250 Boepd (87% oil) and 1,076 Boepd (86% oil), respectively, with an
average lateral length of 10,261 feet. Right-sizing key completion
design variables, including stage spacing and fluid volumes, drove
outstanding results, and Concho expects to capture well cost savings as
a result of the design changes.

Second-Quarter 2018 Financial Summary

Concho’s average realized price for crude oil and natural gas for
second-quarter 2018, excluding the effect of commodity derivatives, was
$60.98 per Bbl and $3.19 per Mcf, respectively, compared to $44.75 per
Bbl and $2.71 per Mcf, respectively, for second-quarter 2017.

Net income for second-quarter 2018 was $137 million, or $0.92 per
diluted share, compared to net income of $152 million, or $1.02 per
diluted share, for second-quarter 2017. Adjusted net income (non-GAAP),
which excludes non-cash and unusual items, for second-quarter 2018 was
$185 million, or $1.24 per diluted share, compared with adjusted net
income for second-quarter 2017 was $77 million, or $0.52 per diluted

EBITDAX (non-GAAP) for second-quarter 2018 totaled $592 million,
compared to $461 million for second-quarter 2017.

Concho’s effective income tax rate for second-quarter 2018 was 23%,
compared to 38% for second-quarter 2017, primarily due to the reduction
of the U.S. federal statutory corporate income tax rate from 35% to 21%.

In the six months ended June 30, 2018, cash flow from operating
activities was approximately $1.1 billion, exceeding $941 million in
capital expenditures (additions to oil and natural gas properties).

Maintaining a Strong Financial Position

At June 30, 2018, Concho had cash of $55 million and long-term debt of
$2.4 billion, with no outstanding borrowings under its credit facility.

As previously reported, in July 2018, Concho closed its offering of $1.6
billion aggregate principal amount of senior unsecured notes, consisting
of $1.0 billion aggregate principal amount of 4.3% senior unsecured
notes due 2028 and $600 million aggregate principal amount of 4.85%
senior unsecured notes due 2048. The proceeds from the offering were
used to redeem RSP’s 6.625% senior notes due 2022 and 5.25% senior notes
due 2025 for approximately $1.2 billion, as well as repay a portion of
the outstanding balance under RSP’s existing credit facility. Concho
repaid the remaining balance under RSP’s credit facility with borrowings
under Concho’s $2.0 billion credit facility. After giving effect to this
use of proceeds upon the closing of the RSP transaction and associated
transaction costs, the Company had long-term debt of $4.2 billion at
June 30, 2018, including approximately $160 million of outstanding
borrowings under its credit facility.

Concho maintains a strong financial position following the RSP
transaction, with investment-grade ratings, a low leverage ratio and
substantial liquidity.


Concho updated its 2018 production and capital program outlook to
reflect the RSP transaction. The Company’s guidance for third-quarter
and full-year 2018 includes production (on a two-stream basis) and
capital from RSP beginning on the acquisition closing date of July 19,
2018. For third-quarter 2018, Concho expects production to average 280
to 285 MBoepd (65% oil); and for full-year 2018, Concho expects
production to average 260 to 263 MBoepd (64% oil).

A key benefit of the RSP transaction lies in the large-scale development
potential of the assets. Concho plans to begin drilling several
development projects on the acquired acreage in the second half of 2018.
In addition, Concho will complete several infrastructure and facility
projects in Loving County, Texas, that facilitate large-scale
development. The Company’s updated full-year 2018 capital program of
$2.5 billion to $2.6 billion includes this activity. Importantly,
Concho’s framework for executing a disciplined capital program within
cash flow remains unchanged, and the Company expects 2018 capital
spending to be fully funded with cash flow from operating activities.

Detailed guidance for 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

Commodity Derivatives Update

The Company enters into commodity derivatives to manage its exposure to
commodity price fluctuations, including regional price dislocations such
as the Midland/Cushing crude oil price differential. Please see the
table under “Derivatives Information” below for detailed information
about Concho’s current derivatives positions, including the commodity
derivatives contracts assumed by the Company in connection with the RSP

Conference Call

Concho will host a conference call tomorrow, August 2, 2018, at 8:00 AM
CT (9:00 AM ET) to discuss second-quarter 2018 results. The telephone
number and passcode to access the conference call are provided below:

To access the live webcast and view the related earnings presentation,
visit Concho’s website at
The replay will also be available on the Company’s website under the
“Investors” section.

Upcoming Conferences

The Company will present at the Barclays’ CEO Energy-Power Conference on
September 5, 2018 at 8:45 AM CT (9:45 AM ET). The presentation will be
webcast and accessible on the Events & Presentations page under the
Investors section of the Company’s website,

Additionally, Concho will participate in the following upcoming

The Company’s presentation will be available on the Company’s website
prior to the Company’s appearance at each conference.

About Concho Resources

Concho Resources (NYSE: CXO) is the largest unconventional shale
producer in the Permian Basin, with operations focused on acquiring,
exploring, developing, and producing oil and natural gas resources.
Concho is at the forefront of applying advanced technology and
large-scale development to safely and efficiently maximize resource
recovery while delivering attractive, long-term economic returns. We are
working today to deliver a better tomorrow for our shareholders, people
and communities. For more information about Concho, visit

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 relating to benefits of the acquisition
of RSP. The words “estimate,” “project,” “predict,” “believe,” “expect,”
“anticipate,” “potential,” “could,” “may,” “enable,” “foresee,” “plan,”
“will,” “guidance,” “outlook,” “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 and other information discussed or referenced in the Company’s
most recent Annual Report on Form 10-K and other filings with the SEC.
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.

The following table sets forth summary information concerning
production and operating data for the periods indicated:


Net production volumes:

The table below provides the costs incurred for oil and natural
gas producing activities for the periods indicated:


The table below provides data associated with the Company’s derivatives
at August 1, 2018, for the periods indicated. The table also includes
the commodity derivative contracts assumed by the Company in connection
with the RSP transaction.




The Company reports its financial results in accordance with the United
States generally accepted accounting principles (GAAP). However, the
Company believes certain non-GAAP performance measures may provide
financial statement users with additional meaningful comparisons between
current results, the results of its peers and of prior periods. In
addition, the Company believes these measures are used by analysts and
others in the valuation, rating and investment recommendations of
companies within the oil and natural gas exploration and production
industry. See the reconciliations throughout this release of GAAP
financial measures to non-GAAP financial measures for the periods

Reconciliation of Net Income to Adjusted Net Income and Adjusted Net
Income per Diluted Share

The Company’s presentation of adjusted net income and adjusted earnings
per share that exclude the effect of certain items are non-GAAP
financial measures. Adjusted net income and adjusted earnings per share
represent earnings and diluted earnings per share determined under GAAP
without regard to certain non-cash and unusual items. The Company
believes these measures provide useful information to analysts and
investors for analysis of its operating results on a recurring,
comparable basis from period to period. Adjusted net income and adjusted
earnings per share should not be considered in isolation or as a
substitute for earnings or diluted earnings per share as determined in
accordance with GAAP and may not be comparable to other similarly titled
measures of other companies.

The following table provides a reconciliation from the GAAP measure of
net income to adjusted net income (non-GAAP), both in total and on a per
diluted share basis, for the periods indicated:

Reconciliation of Net Income to EBITDAX

EBITDAX (as defined below) is presented herein and reconciled from the
GAAP measure of net income because of its wide acceptance by the
investment community as a financial indicator.

The Company defines EBITDAX as net income, plus (1) exploration and
abandonments expense, (2) depreciation, depletion and amortization
expense, (3) accretion of discount on asset retirement obligations
expense, (4) non-cash stock-based compensation expense, (5) (gain) loss
on derivatives, (6) net cash receipts from (payments on) derivatives,
(7) gain on disposition of assets, net, (8) interest expense, (9) loss
on extinguishment of debt, (10) gain on equity method investment
distribution and (11) federal and state income tax expense. EBITDAX is
not a measure of net income or cash flows as determined by GAAP.

The Company’s EBITDAX measure provides additional information which may
be used to better understand the Company’s operations. EBITDAX is one of
several metrics that the Company uses as a supplemental financial
measurement in the evaluation of its business and should not be
considered as an alternative to, or more meaningful than, net income as
an indicator of operating performance. Certain items excluded from
EBITDAX are significant components in understanding and assessing a
company’s financial performance, such as a company’s cost of capital and
tax structure, as well as the historic cost of depreciable and
depletable assets. EBITDAX, as used by the Company, may not be
comparable to similarly titled measures reported by other companies. The
Company believes that EBITDAX is a widely followed measure of operating
performance and is one of many metrics used by the Company’s management
team and by other users of the Company’s consolidated financial
statements. For example, EBITDAX can be used to assess the Company’s
operating performance and return on capital in comparison to other
independent exploration and production companies without regard to
financial or capital structure, and to assess the financial performance
of the Company’s assets and the Company without regard to capital
structure or historical cost basis.

The following table provides a reconciliation of the GAAP measure of net
income to EBITDAX (non-GAAP) for the periods indicated:

The following table summarizes the Company’s operational and financial
guidance for 2018, which includes the impact of the RSP acquisition as
of the transaction closing date of July 19, 2018.

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