Concho Resources Inc. Reports Second Quarter 2009 Financial and Operating Results.MIDLAND, Texas Midland is the county seat of Midland CountyGR6 located on the Southern Plains of the western area of the U.S. State of Texas. As of the 2006 U.S. Census estimate, the city had a total population of 102,073. -- Concho Resources Inc. (NYSE NYSE See: New York Stock Exchange : CXO CXO Chief Executive Officer (corporate title) CXO Chandra X-ray Observatory CXO Chief Experience Officer (corporate title) CXO Conroe, TX (Airport Identifier) ) ("Concho" or the "Company") today reported financial and operating results for the three months and six months ended June 30, 2009. Highlights for the three and six months ended June 30, 2009 include: * Production of 2.7 million barrels of oil equivalents ("MMBoe") for the three months ended June 30, 2009, an 88% increase over the second quarter of 2008 and a 9% increase over the first quarter of 2009 * Proved reserves proved reserves The quantity of minerals expected to be recoverable under current economic and operating conditions. The amount of proved reserves is important in valuing the stock of a company with significant holdings in natural resources. increased to 154.5 MMBoe, up 13% from year-end 2008 * Reserve replacement ratio1 of 428% for the first six months of 2009 * Second quarter net loss of $33.2 million, or $0.39 per share; after adjusting for certain non-cash items, adjusted net income (non-GAAP) would have been $29.4 million, or $0.34 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, for the second quarter of 20092 * Second quarter EBITDAX Earnings Before Interest, Taxes, Depreciation, Depletion, Amortization, and Exploration Expenses - EBITDAX An indicator of a company's financial performance calculated as: of $113.9 million, up 18% from the same period in 20083 1The Company uses the reserve replacement ratio as an indicator of the Company's ability to replenish re·plen·ish v. re·plen·ished, re·plen·ish·ing, re·plen·ish·es v.tr. 1. To fill or make complete again; add a new stock or supply to: replenish the larder. 2. annual production volumes and grow its reserves, thereby providing some information on the sources of future production. It should be noted that the reserve replacement ratio is a statistical indicator that has limitations. The ratio is limited because it typically varies widely based on the extent and timing of new discoveries and property acquisitions. Its predictive and comparative value is also limited for the same reasons. In addition, since the ratio does not imbed im·bed v. Variant of embed. imbed Verb [-bedding, -bedded] same as embed Verb 1. the cost or timing of future production of new reserves, it cannot be used as a measure of value creation. 2The Company believes that this information may be useful to investors who follow the practice of some industry analysts who make adjustments to exclude certain non-cash items when calculating earnings per share and cash flow from operating activities. For an explanation of how the Company calculates and uses adjusted net income (non-GAAP) and cash flow from operating activities adjusted for settlements received (paid) on derivatives not designated as hedges (non-GAAP) and a reconciliation of (i) net income (loss) (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) to adjusted net income (non-GAAP) and (ii) cash flow from operating activities (GAAP) to cash flow from operating activities adjusted for settlements received (paid) on derivatives not designated as hedges (non-GAAP), please see "Supplemental non-GAAP financial measures" below. 3For an explanation of how the Company calculates and uses EBITDAX and a reconciliation of net income (loss) to EBITDAX, please see "Supplemental non-GAAP financial measures" below. Production for the second quarter of 2009 totaled 2.7 MMBoe (1.8 million barrels of oil ("MMBbls") and 5.4 billion cubic feet of natural gas ("Bcf")), an increase of 88% as compared to 1.5 MMBoe (0.9 MMBbls and 3.3 Bcf) produced in the second quarter of 2008. For the first six months of 2009, production totaled 5.2 MMBoe (3.5 MMBbls and 10.4 Bcf), representing an 83% increase over the 2.9 MMBoe (1.8 MMBbls and 6.5 Bcf) produced in the first six months of 2008. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma for the Company's July 2008 acquisition of Henry Petroleum LP and certain of its affiliates, the second quarter of 2009 and first six months of 2009 production increased 43% and 39%, respectively, over the comparable periods of 2008. As of July 1, 2009, the Company estimated that its total proved reserves were 154.5 MMBoe (57% proved developed) utilizing a WTI WTI West Texas Intermediate WTI Western Transportation Institute (Montana State University) WTI World Tribunal on Iraq WTI With The Idea (used in chess to point to the idea behind a specific move) posted oil price of $66.25 per barrel and a Henry Hub Henry Hub is the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX). It is a point on the natural gas pipeline system in Erath, Louisiana. It is owned by Sabine Pipe Line LLC. spot market natural gas price of $3.72 per MMBtu. The Company's estimate of its total proved reserves as of July 1, 2009 is based on the Company's internal reserve analysis and has not been prepared by, reviewed or audited by the Company's independent petroleum engineers. This total represents a 13% increase from year-end 2008 total proved reserves of 137.3 MMBoe (56% proved developed). The reserve estimate as of July 1, 2009 would have been reduced by approximately 3.5 MMBoe had the Company utilized year-end 2008 SEC pricing consisting of a WTI posted oil price of $41.00 per barrel and a Henry Hub spot market natural gas price of $5.71 per MMBtu. Timothy A. Leach, Concho's Chairman, CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. and President commented, "The Company's significant production and reserve growth through the first six months of 2009 continues to validate To prove something to be sound or logical. Also to certify conformance to a standard. Contrast with "verify," which means to prove something to be correct. For example, data entry validity checking determines whether the data make sense (numbers fall within a range, numeric data our efforts in both of our core areas. During the second quarter of 2009, we continued to see improvements in capital efficiency and operating costs operating costs npl → gastos mpl operacionales , and these improvements coupled with higher oil prices have positioned Concho well at the current point in the cycle. For the second half of 2009, we plan to increase activity levels in both of our core areas and in the Lower Abo, which should be supported by increasing cash flow based on current prices and production levels." For the three months ended June 30, 2009, the Company reported a net loss of $33.2 million, or $0.39 per diluted share, as compared to a net loss of $14.4 million, or $0.19 per diluted share, for the three months ended June 30, 2008. EBITDAX (defined as net income (loss), plus (1) exploration and abandonments expense, (2) depreciation, depletion and amortization expense, (3) accretion expense In accounting, accretion expense is the expense created when updating the present value(PV) of a financial instrument. For example, if one originally recognizes the present value of a liability at $650, which has a future value (FV) of $1000, every year one must increase the , (4) impairments of long-lived assets, (5) non-cash stock-based compensation expense, (6) ineffective portion of cash flow hedges A cash flow hedge is a hedge of the exposure to the variability of cash flow that
income - the financial gain (earned or unearned) accruing over a given period of time ) increased to $113.9 million in the second quarter of 2009, as compared to $96.1 million in the second quarter of 2008. The Company's second quarter of 2009 results were impacted by several non-cash items. These non-cash items, recorded in the second quarter of 2009, included a $105.9 million non-cash mark-to-market unrealized loss Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. on commodity and interest rate derivatives An interest rate derivative is a derivative where the underlying asset is the right to pay or receive a (usually notional) amount of money at a given interest rate. The interest rate derivatives market is the largest derivatives market in the world. , a $4.5 million impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of long-lived assets, and $0.5 million of leasehold An estate, interest, in real property held under a rental agreement by which the owner gives another the right to occupy or use land for a period of time. leasehold n. abandonments. Excluding these items and their tax impact second quarter of 2009 adjusted net income would have been $29.4 million, or $0.34 per diluted share. Excluding similar non-cash items and their tax impact from the second quarter of 2008, adjusted net income would have been $40.9 million, or $0.53 per diluted share. For a description of the use of adjusted net income (non-GAAP), see footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." 2 above. For a reconciliation of net income (loss) (GAAP) to adjusted net income (non-GAAP) for the three and six month periods ended June 30, 2009 and 2008, please refer to the attached tables. The Company's cash flow from operating activities (GAAP) for the six months ended June 30, 2009 was $118.2 million as compared to $162.9 million for the six months ended June 30, 2008. Cash flow from operating activities for the six months ended June 30, 2009, adjusted for settlements received (paid) on derivatives not designated as hedges (non-GAAP) was $179.7 million which is a 23% increase over the comparable period of 2008, which totaled $146.6 million. For a description of the use of cash flow from operating activities adjusted for settlements received (paid) on derivatives not designated as hedges (non-GAAP), please see footnote 2 above. For a reconciliation of cash flow from operating activities (GAAP) to cash flow from operating activities adjusted for settlements received (paid) on derivatives not designated as hedges (non-GAAP) for the six month periods ended June 30, 2009 and 2008, please refer to the attached tables. For the three months ended June 30, 2009, the Company received cash receipts for settlements on derivatives contracts not designated as hedges of $24.3 million, and the non-cash mark-to-market unrealized loss for the derivatives contracts not designated as hedges was $105.9 million. This is compared to cash payments of $12.4 million on derivatives contracts not designated as hedges and a $90.1 million non-cash mark-to-market unrealized loss on contracts not designated as hedges for the three months ended June 30, 2008. To better understand the impact of the Company's derivatives positions and their impact on the second quarter statement of operations See Income statement. , please see the "summary production and price data" table at the end of this press release. Operating revenues operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. for the second quarter of 2009 decreased 7% when compared to the second quarter of 2008, despite the 88% increase in production. This decrease is attributable to the 54% decrease in the Company's realized oil price and the 62% decrease in the Company's realized natural gas price in the second quarter of 2009 compared to the same period in 2008. Impairments of long-lived assets increased to $4.5 million in the second quarter of 2009 as compared to $0.05 million in the second quarter of 2008. This increase was primarily the result of lower commodity prices and their effect on the resulting recoverability of the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of certain non-core natural gas properties in Eddy and Lea Counties, New Mexico New Mexico, state in the SW United States. At its northwestern corner are the so-called Four Corners, where Colorado, New Mexico, Arizona, and Utah meet at right angles; New Mexico is also bordered by Oklahoma (NE), Texas (E, S), and Mexico (S). at the end of the second quarter 2009 as compared to the second quarter of 2008. General and administrative expense ("G&A") for the quarter ended June 30, 2009 totaled $14.2 million. Recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. cash G&A for the quarter totaled $9.2 million, stock-based compensation (non-cash) totaled $2.2 million, and the remaining $2.8 million was attributable to amounts owed to certain employees which are to be paid over a two year period that commenced on July 31, 2008 under the terms of the Henry Petroleum purchase agreement. Operations For the six months ended June 30, 2009, the Company commenced the drilling of or participated in a total of 147 gross wells (130 operated), of which 112 had been completed as producers, 33 of which were in progress and two of which were unsuccessful at June 30, 2009. On the Company's New Mexico Shelf assets, the original 2009 operating plan projected the drilling of 69 gross wells in the first six months of 2009, but due to increased drilling efficiencies, the Company was able to drill 88 wells in the first six months of 2009. Currently, the Company is operating twelve drilling rigs, all in the Permian Basin The Permian Basin is a sedimentary basin largely contained in the western part of the U.S. state of Texas. It reaches from just south of Lubbock, Texas, to just south of Midland & Odessa, extending westward into the southeastern part of the adjacent state of New Mexico. ; seven of these rigs are drilling Yeso wells in the New Mexico Permian, four of these rigs are drilling Wolfberry wolf·ber·ry n. A deciduous shrub (Symphoricarpos occidentalis) of western North America, having white berries and pinkish bell-shaped flowers. wells in the Texas Permian, and one rig is drilling Lower Abo wells in New Mexico. New Mexico Permian For the three months ended June 30, 2009, the Company drilled 49 wells (47 operated) on its New Mexico Permian assets, with a 100% success rate on the 29 wells that had been completed by June 30, 2009. Texas Permian For the three months ended June 30, 2009, the Company drilled seventeen wells (sixteen operated) on its Texas Permian assets, with a 75% success rate on the eight wells (both dry holes were deeper opportunities targeting the Strawn interval) that had been completed by June 30, 2009. Lower Abo and Bakken Oil Plays In early July, the Company reinitiated its operated drilling program in the Lower Abo oil play. The Company currently plans to keep one rig running in this play for the remainder of 2009. During the second quarter and into the third quarter of 2009, the Company has continued to add to its Lower Abo acreage position and as of the end of July the Company's acreage position in the Lower Abo oil play totaled 31,620 gross (28,257 net) acres. In addition, the Company participated in six Bakken wells during the quarter ended June 30, 2009. In total, the Company has participated as a non-operator in 37 Bakken wells in North Dakota North Dakota, state in the N central United States. It is bordered by Minnesota, across the Red River of the North (E), South Dakota (S), Montana (W), and the Canadian provinces of Saskatchewan and Manitoba (N). . Updated 2009 Capital Budget and Guidance The Company now estimates that its annual 2009 production will total approximately 10.6 MMBoe compared to the Company's most recent guidance of approximately 9.7 MMBoe. Additionally, the Company currently estimates that its direct operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. will average $6.20 - $6.50 per Boe for 2009 vs. previous guidance of $6.90 - $7.40 per Boe. Due to increased production and commodity prices, the Company now estimates that its capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. for 2009 will approximate $400 million, as compared to most recent guidance of approximately $300 million. This increase in planned capital spending for the remainder of 2009 is the result of increasing activity levels in both of the Company's core areas of operations for the second half of 2009; specifically the Company plans to be running eight operated rigs on its New Mexico Permian assets (seven in the Yeso and one in the Lower Abo) and nine operated rigs in the Wolfberry play in Texas Permian by year-end 2009. 2010 Preliminary Capital Expenditures The Company's preliminary capital expenditure estimate for 2010, based on current capital costs, is a range of $460 to $480 million, which contemplates a continuation in 2010 of the Company's drilling activity level at the end of 2009. At this level of capital spending, the Company currently estimates that its production for 2010 would total approximately 12.5 MMBoe. Substantially all of this capital spending will be funded with internally generated after tax cash flow assuming (i) a NYMEX See New York Mercantile Exchange. NYMEX See New York Mercantile Exchange (NYM). crude oil price of $70 per barrel and a NYMEX natural gas price of $4 per Mcf for the Company's unhedged production and (ii) that the Company produces 12.5 MMBoe. The Company intends to aggressively monitor both the direction of commodity prices and the costs of goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. , and plans to provide more detailed 2010 operating plan guidance in November 2009 after its Board of Directors has reviewed and approved its 2010 capital budget. Derivative Update During the second quarter and early into the third quarter, the Company has continued to add to its derivative positions. For the remainder of 2009, the Company has 2.5 MMBbls of oil and 5.0 Bcf of natural gas hedged. For 2010, the Company currently has 3.9 MMBbls of oil and 8.4 Bcf of natural gas hedged. Please refer to the attached tables for more detailed information about our current hedge position. Conference Call Information The Company will host a conference call on Tuesday, August 4, 2009 at 10:00 a.m. Central Time to discuss second quarter 2009 financial and operating results. Interested parties may listen to the conference call via the Company's website at http://www.conchoresources.com or by dialing 866-713-8563 (passcode: 76322946). A replay of the conference call will be available on the Company's website or by dialing 888-286-8010 (passcode: 20018421). Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 gen·er·al·i·ty n. pl. gen·er·al·i·ties 1. The state or quality of being general. 2. An observation or principle having general application; a generalization. 3. of the foregoing, forward-looking statements contained in this press release specifically include the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, including the Company's drilling program, production, derivatives activities, capital expenditure levels and other guidance included in this press release. These statements are based on certain assumptions made by the Company based on management's experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. 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 risks relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc financial performance and results, prices and demand for oil and natural gas, availability of drilling equipment and personnel, availability of sufficient capital to execute our business plan, , our ability to replace reserves and efficiently develop and exploit our current reserves and other important factors that could cause actual results to differ materially from those projected as described in the Company's reports filed with the Securities and Exchange Commission. 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. About Concho Resources Inc. Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development, exploitation 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. In addition, the Company is involved in a number of emerging plays. For more information, visit Concho's website at www.conchoresources.com. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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