Concho Resources Inc. Reports Fourth Quarter and Full Year 2010 Financial and Operating Results

MIDLAND, Texas--()--Concho Resources Inc. (NYSE: CXO) (“Concho” or the “Company”) today reported financial and operating results for the three months and year ended December 31, 2010. Highlights for the year ended December 31, 2010 include:

  • Production of 15.6 million barrels of oil equivalents (“MMBoe”), a 42% increase over 2009
  • Net income of $204.4 million, or $2.18 per diluted share as compared to a net loss of $9.8 million, or $0.12 per diluted share, in 2009
  • Adjusted net income (non-GAAP)1 of $254.1 million, or $2.71 per diluted share, as compared to $143.5 million, or $1.67 per diluted share, for 2009
  • EBITDAX2 of $743.0 million for 2010, a 56% increase over 2009

1 Adjusted net income (non-GAAP) is comparable to securities analyst estimates. For an explanation of how we calculate adjusted net income (non-GAAP) and a reconciliation of net income (loss) (GAAP) to adjusted net income (non-GAAP), please see "Supplemental Non-GAAP Financial Measures" below.

2 For an explanation of how we calculate and use EBITDAX and a reconciliation of net income (loss) to EBITDAX, please see "Supplemental Non-GAAP Financial Measures" below.

Year End 2010 Financial Results

Production for 2010 totaled 15.6 MMBoe (10.3 million barrels of oil (“MMBbls”) and 31.4 billion cubic feet of natural gas (“Bcf”), an increase of 42% as compared to 10.9 MMBoe (7.3 MMBbls of oil and 21.6 Bcf of natural gas) produced in 2009. Production in 2010 increased 32% over 2009 production, excluding the properties acquired from Marbob Energy Corporation and the acquisition of certain properties in connection with the Marbob preferential purchase right dispute in 2010. The Company’s 2010 production includes production from its non-core Permian asset divestiture that is now being reflected in discontinued operations in our historical results. For more information, please see the “summary production and price data” tables at the end of this press release.

Timothy A. Leach, Concho's Chairman, CEO and President commented, “This past year was exceptional for Concho. During the year, we closed the largest, most strategic acquisition in the history of the Company and continued to develop our core assets. The acquisition, coupled with our leasing efforts, established a new core area targeting various intervals in the Delaware Basin. Today, we are a larger version of the same company we were last year; with core philosophies of reinvesting our cash flow into drilling projects in our core areas of operation and pursuing opportunistic acquisitions.”

For 2010, the Company reported net income of $204.4 million, or $2.18 per diluted share, as compared to net loss of $9.8 million, or $0.12 per diluted share, for 2009. The Company’s 2010 results were impacted by several non-cash items. These non-cash items recorded in 2010, included $73.5 million non-cash mark-to-market unrealized loss on commodity and interest rate derivatives, $11.6 million impairment of long-lived assets, $8.3 million loss due to a change in the state statutory effective tax rate, $7.6 million of leasehold abandonments and $25.5 million in other non-cash items related to discontinued operations. Excluding these items and assuming a normalized tax rate of 38%, 2010 adjusted net income would have been $254.1 million, or $2.71 per diluted share. Excluding similar non-cash items and their tax impact for 2009, adjusted net income would have been $143.5 million, or $1.67 per diluted share. For a description of the use of adjusted net income (non-GAAP), see footnote 1 above. For a reconciliation of net income (loss) (GAAP) to adjusted net income (non-GAAP) for the three and twelve months ended December 31, 2010 and 2009, please refer to the attached tables.

EBITDAX (defined as net income (loss), plus (1) exploration and abandonments expense, (2) depreciation, depletion and amortization expense, (3) accretion expense, (4) impairments of long-lived assets, (5) non-cash stock-based compensation expense, (6) bad debt expense, (7) unrealized (gain) loss on derivatives not designated as hedges, (8) (gain) loss on sale of assets, net, (9) interest expense, (10) federal and state income taxes, and (11) similar items listed above that are presented in discontinued operations) increased to $743.0 million in 2010, as compared to $475.2 million in 2009.

Oil and gas production expense from continuing operations for 2010, including taxes, totaled $170.8 million, or $11.35 per barrel of oil equivalent (“Boe”), a 19% increase per Boe from 2009. This increase was due primarily to higher commodity prices, resulting in higher production taxes, (which averaged $5.52 per Boe in 2010 as compared to $4.10 per Boe in 2009).

Depletion, depreciation and amortization expense (“DD&A”) from continuing operations for 2010 totaled $249.9 million, or $16.59 per Boe, a 13% decrease per Boe from 2009. This decrease was due, in part, to additional proved reserves added in the 4th quarter of 2009 associated with the adoption of the new reserve rules, improved oil prices at which our proved reserves determined in 2010, which increased proved reserves and additional proved reserves associated with new wells that were successfully drilled and completed.

General and administrative expense (“G&A”) from continuing operations for 2010 totaled $64.3 million, or $4.23 per Boe, as compared to $53.2 million, or $5.13 per Boe for 2009. Recurring cash G&A for 2010 totaled $46.3 million, stock-based compensation (non-cash) totaled $12.9 million, and $5.1 million was attributable to amounts owed to certain employees of Henry Petroleum for which the final payment was made in July 2010 under the terms of the Henry Petroleum purchase agreement.

The Company’s 2010 cash flow from operating activities (GAAP) was $651.6 million, as compared to $359.5 million in 2009. Cash flow from operating activities for the twelve months ended December 31, 2010, adjusted for settlements received from (paid on) derivatives not designated as hedges (non-GAAP) was $637.8 million, which is a 44% increase over 2009, which totaled $442.0 million. For a description of the use of cash flow from operating activities adjusted for settlements received from (paid on) derivatives not designated as hedges (non-GAAP) and for a reconciliation of cash flow from operating activities (GAAP) to cash flow from operating activities adjusted for settlements received from (paid on) derivatives not designated as hedges (non-GAAP) for the twelve months ended December 31, 2010 and 2009, please refer to the attached tables.

In 2010, the Company made cash payments for settlements on derivatives contracts not designated as hedges of $13.8 million and the non-cash mark-to-market unrealized loss for the derivatives contracts not designated as hedges was $73.5 million. This is compared to cash receipts of $82.4 million on derivatives contracts not designated as hedges and a $239.3 million non-cash mark-to-market unrealized loss on contracts not designated as hedges in 2009. To better understand the Company’s derivatives positions and their impact on the Company’s statement of operations, please see the “summary production and price data” and “derivatives information” tables at the end of this press release.

Liquidity

At December 31, 2010, the Company’s total debt balance was approximately $1.7 billion, of which $613.5 million was outstanding under the Company’s credit facility. The Company’s borrowing base under its credit facility is $2.0 billion, and approximately $1.4 billion was available to be borrowed at December 31, 2010.

Operations

During 2010, the Company commenced the drilling of or participated in a total of 662 gross wells (565 operated), of which 503 had been completed as producers, 158 of which were in progress and one of which was an unsuccessful exploratory dry hole at December 31, 2010. Currently, the Company is operating 31 drilling rigs, all in the Permian Basin. Twelve of these rigs are drilling Yeso wells on the New Mexico Shelf, thirteen are drilling Wolfberry wells in the Texas Permian, five are drilling Bone Spring wells in the Delaware Basin and one is drilling Lower Abo wells on the New Mexico Shelf.

New Mexico Shelf

During the fourth quarter of 2010, the Company drilled 75 wells (69 operated) on its New Mexico Shelf assets, which includes both the Yeso and the Lower Abo, with a 100% success rate on the 32 wells that had been completed by December 31, 2010. During 2010, the Company drilled 270 wells (248 operated) on the New Mexico Shelf.

Texas Permian

During the fourth quarter of 2010, the Company drilled 87 wells (all operated) on its Texas Permian assets, with a 100% success rate on the 6 wells that had been completed by December 31, 2010. During 2010, the Company drilled 313 wells (301 operated) in the Texas Permian.

Delaware Basin

During the fourth quarter of 2010, the Company drilled 19 wells (15 operated) on its Delaware Basin assets. Prior to the acquisition, the Company drilled 6 wells (1 operated) and Marbob drilled 21 wells (19 operated) on its Delaware Basin assets in 2010. During 2010, the Company and Marbob drilled 46 wells (35 operated) on its Delaware Basin assets with a 100% success rate on the 14 wells completed by year end.

Bakken

During the first quarter of 2011, the Company initiated a divestment process on its Bakken assets, which it expects to conclude during the first half of 2011. The Company participated in 11 Bakken wells during the fourth quarter of 2010, and 52 Bakken wells during 2010.

Non-Core Permian Asset Divestiture

Fourth quarter 2010 production included approximately 1,400 Boe per day of production associated with our divestiture of non-core Permian Basin assets. Excluding this divested production, fourth quarter 2010 total production would have been approximately 4.9 MMBoe. In addition, oil and gas production expense, excluding these properties, would have been lower in the fourth quarter 2010 since these properties have a higher lease operating expense than our current properties. The historical results of operations, including the gain on the sale, are reflected as discontinued operations in the statements of operations.

Derivative Update

During the fourth quarter and early into the first quarter, the Company has continued to add to its oil derivative positions. For 2011, the Company has 10.4 MMBbls of oil and 12.3 Bcf of natural gas hedged. For 2012, the Company currently has 8.0 MMBbls of oil and 0.3 Bcf of natural gas hedged. Please refer to the attached table for more detailed information about the Company’s current derivative positions.

Conference Call Information

The Company will host a conference call on Thursday, February 24, 2011, at 9:00 a.m. CST (10:00 a.m. EST) to discuss its fourth quarter and full year 2010 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) 700-0133 (passcode: 50400949). A replay of the conference call will be available on the Company’s website or by dialing (888) 286-8010 (passcode: 83572946).

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 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 of the foregoing, forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Company's future financial position, liquidity and capital resources, operations, performance, business strategy, returns, capital expenditure budgets, oil and natural gas reserves, number of identified drilling locations, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, potential financing, levels of production, drilling program, derivative activities, costs and other guidance included in this press release. These statements are based on certain assumptions 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 factors discussed or referenced in the "Risk Factors" section of the Company's most recent Form 10-K and Form 10-Q filings and risks relating to sustained or further declines in the prices we receive for our oil and natural gas; uncertainties about the estimated quantities of oil and natural gas reserves; risks related to the integration of the Marbob assets and employees with our operations; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing; drilling and operating risks; the adequacy of our capital resources and liquidity including, but not limited to, access to additional borrowing capacity under our credit facility; difficult and adverse conditions in the domestic and global capital and credit markets; risks related to the concentration of our operations in the Permian Basin of Southeast New Mexico and West Texas; potential financial losses or earnings reductions from our commodity price risk management program; shortages of oilfield equipment, services and qualified personnel and increases in costs for such equipment, services and personnel; risks and liabilities associated with acquired properties or businesses; uncertainties about our ability to successfully execute our business and financial plans and strategies; uncertainties about our ability to replace reserves and economically develop our current reserves; general economic and business conditions, either internationally or domestically or in the jurisdictions in which we operate; competition in the oil and natural gas industry; uncertainty concerning our assumed or possible future results of operations; our existing indebtedness, as well as the significant increase in our indebtedness as a result of the Marbob acquisition; 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.

About Concho Resources Inc.

Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development 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.

 
Concho Resources Inc.
Consolidated Balance Sheets
Unaudited
   
December 31,

(in thousands, except share and per share data)

  2010   2009
Assets
Current assets:
Cash and cash equivalents $ 384 $ 3,234
Accounts receivable, net of allowance for doubtful accounts:
Oil and gas 136,471 69,199
Joint operations and other 131,912 100,120
Related parties 169 216
Derivative instruments 6,855 1,309
Deferred income taxes 42,716 29,284
Prepaid costs and other   12,126     13,896  
Total current assets   330,633     217,258  
Property and equipment, at cost:
Oil and gas properties, successful efforts method 5,616,249 3,358,004
Accumulated depletion and depreciation   (730,509 )   (517,421 )
Total oil and gas properties, net 4,885,740 2,840,583
Other property and equipment, net   28,047     15,706  
Total property and equipment, net   4,913,787     2,856,289  
Deferred loan costs, net 52,828 20,676
Intangible asset - operating rights, net 34,973 36,522
Inventory 28,342 16,255
Noncurrent derivative instruments 2,233 23,614
Other assets   5,698     471  
Total assets $ 5,368,494   $ 3,171,085  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable:
Trade $ 39,943 $ 15,443
Related parties 1,197 291
Bank overdrafts 12,314 3,415
Revenue payable 57,406 31,069
Accrued and prepaid drilling costs 215,079 164,282
Derivative instruments 97,775 62,419
Other current liabilities   83,275     60,095  
Total current liabilities   506,989     337,014  
Long-term debt 1,668,521 845,836
Deferred income taxes 720,889 603,286
Noncurrent derivative instruments 51,647 29,337
Asset retirement obligations and other long-term liabilities 36,574 20,184
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value; 300,000,000 authorized; 102,842,082 and 85,815,926
shares issued at December 31, 2010 and 2009, respectively 103 86
Additional paid-in capital 1,874,649 1,029,392
Retained earnings 510,737 306,367
Treasury stock, at cost; 31,963 and 12,380 shares at December 31, 2010 and 2009, respectively   (1,615 )   (417 )
Total stockholders’ equity   2,383,874     1,335,428  
Total liabilities and stockholders’ equity $ 5,368,494   $ 3,171,085  
                 

   
Concho Resources Inc.
Consolidated Statements of Operations
Unaudited

Three Months Ended

Years Ended

 

December 31, December 31,
(in thousands, except per share amounts) 2010   2009   2010   2009
Operating revenues:    
Oil sales $ 252,800 $ 132,601 $ 767,153 $ 407,785
Natural gas sales   70,392     37,974     205,423     111,816  
Total operating revenues   323,192     170,575     972,576     519,601  
Operating costs and expenses:
Oil and natural gas production 56,087 29,882 170,767 98,782
Exploration and abandonments 4,676 462 10,324 10,632
Depreciation, depletion and amortization 85,744 46,012 249,850 196,736
Accretion of discount on asset retirement obligations 483 224 1,503 917
Impairments of long-lived assets 5,947 1,256 11,614 7,880
General and administrative (including non-cash stock-based
compensation of $4,077 and $2,379 for the three months ended
December 31, 2010 and 2009, respectively, and $12,931 and $9,040
for the years ended December 31, 2010 and 2009, respectively) 17,451 13,871 64,275 53,163
Bad debt expense 292 (1,035 ) 870 (1,035 )
Loss on derivatives not designated as hedges   149,554     62,422     87,325     156,857  
Total operating costs and expenses   320,234     153,094     596,528     523,932  

Income (loss) from operations

  2,958     17,481     376,048     (4,331 )
Other income (expense):
Interest expense (25,794 ) (10,913 ) (60,087 ) (28,292 )
Other, net   (6,380 )   (66 )   (10,278 )   (414 )
Total other expense   (32,174 )   (10,979 )   (70,365 )   (28,706 )
Income (loss) from continuing operations before income taxes (29,216 ) 6,502 305,683 (33,037 )
Income tax benefit (expense)   1,339     9,364     (122,649 )   21,510  
Income (loss) from continuing operations (27,877 ) 15,866 183,034 (11,527 )

Income from discontinued operations, net of tax

  19,761     1,013     21,336     1,725  
Net income (loss) $ (8,116 ) $ 16,879   $ 204,370   $ (9,802 )
Basic earnings per share:
Income (loss) from continuing operations $ (0.28 ) $ 0.19 $ 1.98 $ (0.14 )

Income from discontinued operations, net of tax

  0.20     0.01     0.23     0.02  
Net income (loss) $ (0.08 ) $ 0.20   $ 2.21   $ (0.12 )
Weighted average shares used in basic earnings per share   99,014     85,247     92,542     84,912  
Diluted earnings per share:
Income (loss) from continuing operations $ (0.28 ) $

0.19

$ 1.95 $ (0.14 )

Income from discontinued operations, net of tax

  0.20     0.01     0.23     0.02  
Net income (loss) $ (0.08 ) $

0.20

  $ 2.18   $ (0.12 )
Weighted average shares used in diluted earnings per share   99,014     86,521     93,837     84,912  

   
Concho Resources Inc.
Consolidated Statements of Cash Flows
Unaudited
 
Years Ended December 31,
(in thousands)   2010   2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 204,370 $ (9,802 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization

249,850

196,736

Accretion of discount on asset retirement obligations 1,503 917
Impairments of long-lived assets 11,614 7,880
Exploration and abandonments, including dry holes 7,612 6,997
Non-cash compensation expense 12,931 9,040
Bad debt expense 870 (1,035 )
Deferred income taxes

104,930

(29,142

)
Loss on sale of assets, net 58 114
Loss on derivatives not designated as hedges 87,325 156,857
Discontinued operations

(7,157

)

12,088

Other non-cash items 6,837 3,870
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable

(92,957

) (26,217 )
Prepaid costs and other 3,255 (7,952 )
Inventory (2,321 ) 4,117
Accounts payable 24,373 7,960
Revenue payable 26,337 8,118
Other current liabilities   12,152     19,000  
Net cash provided by operating activities   651,582     359,546  
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures on oil and natural gas properties (684,347 ) (403,798 )
Acquisition of oil and natural gas properties and other assets (1,442,700 ) (265,469 )
Additions to other property and equipment (6,935 ) (4,396 )
Proceeds from the sale of assets 104,349 5,099
Settlements received from (paid on) derivatives not designated as hedges   (13,824 )   82,416  
Net cash used in investing activities   (2,043,457 )   (586,148 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 2,946,748 1,158,650
Payments of long-term debt (2,283,248 ) (942,916 )
Exercise of stock options 5,778 6,116
Excess tax benefit from stock-based compensation 11,346 5,212
Net proceeds from issuance of common stock 739,446 -
Payments for loan origination costs (38,746 ) (8,667 )
Purchase of treasury stock (1,198 ) (292 )
Bank overdrafts   8,899     (6,019 )
Net cash provided by financing activities   1,389,025     212,084  
Net decrease in cash and cash equivalents (2,850 ) (14,518 )
Cash and cash equivalents at beginning of period   3,234     17,752  
Cash and cash equivalents at end of period $ 384   $ 3,234  
SUPPLEMENTAL CASH FLOWS:
Cash paid for interest and fees, net of $184 and $66 capitalized interest $ 48,052 $ 14,862
Cash paid for income taxes $ 19,885 $ 7,299
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in acquisition of oil and natural gas properties and other
assets $ 75,773 $ -
Issuance of debt in acquisition of oil and natural gas properties and other assets $ 159,000 $ -
Deferred tax effect of acquired oil and natural gas properties and other assets   $ -     $ (835 )

 

Concho Resources Inc.

Summary Production and Price Data

Unaudited

The following table sets forth summary information from our continuing and discontinued operations concerning our production and operating data for the periods indicated:

           
 
Three Months Ended Years Ended
December 31, December 31,
        2010   2009   2010   2009
 
Production and operating data:
Net production volumes:
Oil (MBbl) 3,167 1,906 10,330 7,336
Natural gas (MMcf) 11,012 5,446 31,405 21,568
Total (MBoe) 5,002 2,814 15,564 10,931
 
Average daily production volumes:
Oil (Bbl) 34,424 20,717 28,301 20,099
Natural gas (Mcf) 119,696 59,196 86,041 59,090
Total (Boe) 54,373 30,583

42,641

29,947
 
Average prices:
Oil, without derivatives (Bbl) $ 81.31 $ 72.18 $ 76.05 $ 57.98
Oil, with derivatives (Bbl) (a) $ 76.78 $ 74.50 $ 73.51 $ 68.18
Natural gas, without derivatives (Mcf) $ 6.58 $ 7.35 $ 6.77 $ 5.52
Natural gas, with derivatives (Mcf) (a) $ 7.22 $ 7.67 $ 7.32 $ 6.03
Total, without derivatives (Boe) $ 65.96 $ 63.12 $ 64.13 $ 49.81
Total, with derivatives (Boe) (a) $ 64.50 $ 65.30 $ 63.56 $ 57.65
 
Operating costs and expenses per Boe:
Lease operating expenses and workover costs $ 6.23 $ 6.07 $ 6.12 $ 5.82
Oil and natural gas taxes $ 5.47 $ 5.34 $ 5.49 $ 4.07
General and administrative $ 3.43 $ 4.85 $ 4.07 $ 4.78
Depreciation, depletion and amortization   $ 17.49   $ 17.11   $ 16.53   $ 18.86
(a)   Includes the cash payments/receipts from commodity derivatives not designated as hedges and reported in operating costs and expenses. The following table reflects the amounts of cash payments/receipts from commodity derivatives not designated as hedges that were included in computing average prices with derivatives and reconciles to the amount in gain (loss) on derivatives not designated as hedges as reported in the statements of operations:
                 
  Three Months Ended   Years Ended
December 31, December 31,
(in thousands)   2010   2009   2010   2009
   
Loss on derivatives not designated as hedges:
Cash (payments on) receipts from oil derivatives $ (14,330 ) $ 4,413 $ (26,281 ) $ 74,796
Cash receipts from natural gas derivatives 7,036 1,728 17,414 10,955
Cash payments on interest rate derivatives (1,299 ) (1,315 ) (4,957 ) (3,335 )
Unrealized mark-to-market loss on commodity and interest rate
derivatives   (140,961 )   (67,248 )   (73,501 )   (239,273 )
Loss on derivatives not designated as hedges $ (149,554 ) $ (62,422 ) $ (87,325 ) $ (156,857 )

The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash payments on/receipts from commodity derivatives that are presented in gain (loss) on derivatives not designated as hedges in the statements of operations. This presentation of average prices with derivatives is a means by which to reflect the actual cash performance of our commodity derivatives for the respective periods and presents oil and natural gas prices with derivatives in a manner consistent with the presentation generally used by the investment community.

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

       
Three Months Ended Years Ended
December 31, December 31,
    2010   2009   2010   2009
 
Production and operating data:
Net production volumes:
Oil (MBbl) 3,109 1,834 10,078 7,035
Natural gas (MMcf) 10,614 5,059 29,867 19,847
Total (MBoe) 4,878 2,677 15,056 10,343
 
Average daily production volumes:
Oil (Bbl) 33,793 19,935 27,611 19,274
Natural gas (Mcf) 115,370 54,989 81,827 54,375
Total (Boe) 53,021 29,100 41,249 28,337
 
Average prices:
Oil, without derivatives (Bbl) $ 81.31 $ 72.30 $ 76.12 $ 57.97
Oil, with derivatives (Bbl) (a) $ 76.70 $ 74.71 $ 73.51 $ 68.60
Natural gas, without derivatives (Mcf) $ 6.63 $ 7.51 $ 6.88 $ 5.63
Natural gas, with derivatives (Mcf) (a) $ 7.29 $ 7.85 $ 7.46 $ 6.19
Total, without derivatives (Boe) $ 66.26 $ 63.72 $ 64.60 $ 50.24
Total, with derivatives (Boe) (a) $ 64.76 $ 66.01 $ 64.01 $ 58.53
 
Operating costs and expenses per Boe:
Lease operating expenses and workover costs $ 6.01 $ 5.73 $ 5.83 $ 5.45
Oil and natural gas taxes $ 5.49 $ 5.43 $ 5.52 $ 4.10
General and administrative $ 3.58 $ 5.18 $ 4.23 $ 5.13
Depreciation, depletion and amortization   $

17.58

  $

17.19

  $

16.59

  $

19.02

(a)   Includes the cash payments/receipts from commodity derivatives not designated as hedges and reported in operating costs and expenses. The following table reflects the amounts of cash payments/receipts from commodity derivatives not designated as hedges that were included in computing average prices with derivatives and reconciles to the amount in gain (loss) on derivatives not designated as hedges as reported in the statements of operations:
                 
  Three Months Ended   Years Ended
December 31, December 31,
(in thousands)   2010   2009   2010   2009
   
Loss on derivatives not designated as hedges:
Cash (payments on) receipts from oil derivatives $ (14,330 ) $ 4,413 $ (26,281 ) $ 74,796
Cash receipts from natural gas derivatives 7,036 1,728 17,414 10,955
Cash payments on interest rate derivatives (1,299 ) (1,315 ) (4,957 ) (3,335 )
Unrealized mark-to-market loss on commodity and interest rate
derivatives   (140,961 )   (67,248 )   (73,501 )   (239,273 )
Loss on derivatives not designated as hedges $ (149,554 ) $ (62,422 ) $ (87,325 ) $ (156,857 )

The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash payments on/receipts from commodity derivatives that are presented in gain (loss) on derivatives not designated as hedges in the statements of operations. This presentation of average prices with derivatives is a means by which to reflect the actual cash performance of our commodity derivatives for the respective periods and presents oil and natural gas prices with derivatives in a manner consistent with the presentation generally used by the investment community.

 

Concho Resources Inc.

Supplemental Non-GAAP Financial Measures

Unaudited

EBITDAX (as defined below) is presented herein, and reconciled from the generally accepted accounting principle (“GAAP”) measure of net income because of its wide acceptance by the investment community as a financial indicator of a company’s ability to internally fund exploration and development activities.

We define EBITDAX as net income (loss), plus (1) exploration and abandonments expense, (2) depreciation, depletion and amortization expense, (3) accretion expense, (4) impairments of long-lived assets, (5) non-cash stock-based compensation expense, (6) bad debt expense, (7) unrealized (gain) loss on derivatives not designated as hedges, (8) (gain) loss on sale of assets, (9) interest expense, (10) federal and state income taxes, and (11) similar items listed above that are presented in discontinued operations. EBITDAX is not a measure of net income or cash flow as determined by GAAP.

Our EBITDAX measure provides additional information which may be used to better understand our operations. EBITDAX is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net income, as an indicator of our 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 assets, none of which are components of EBITDAX. EBITDAX as used by us may not be comparable to similarly titled measures reported by other companies. We believe that EBITDAX is a widely followed measure of operating performance and is one of many metrics used by our management team and by other users of our consolidated financial statements. For example, EBITDAX can be used to assess our 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 our assets and our company without regard to capital structure or historical cost basis.

The following table provides a reconciliation of net income (loss) to EBITDAX:

     
Three Months Ended Years Ended
December 31, December 31,
(in thousands)   2010   2009   2010   2009
 
Net income (loss) $ (8,116 ) $ 16,879 $ 204,370 $ (9,802 )
Exploration and abandonments 4,676 462 10,324 10,632
Depreciation, depletion and amortization

85,744

46,012

249,850

196,736

Accretion of discount on asset retirement obligations 483 224 1,503 917
Impairments of long-lived assets 5,947 1,256 11,614 7,880
Non-cash stock-based compensation 4,077 2,379 12,931 9,040
Bad debt expense 292 (1,035 ) 870 (1,035 )
Unrealized loss on derivatives not designated as hedges 140,961 67,248 73,501 239,273
(Gain) loss on sale of assets, net 34 (33 ) 58 114
Interest expense 25,794 10,913 60,087 28,292
Income tax expense (benefit)

(1,339

)

(9,364

)

122,649

(21,510

)

Discontinued operations  

(15,153

)

 

4,044

   

(4,763

)

 

14,671

 
EBITDAX $ 243,400   $ 138,985   $ 742,994 $ 475,208  
                 

The following tables provide information that the Company believes may be useful to investors who follow the practice of some industry analysts who adjust reported company earnings and cash flow from operating activities to match realizations to production settlement months and make other adjustments to exclude certain non-cash items. The following table provides a reconciliation of net income (loss) (GAAP) to adjusted net income (non-GAAP):

                 
       
Three Months Ended Years Ended
December 31,

 

December 31,
(in thousands, except per share amounts)   2010   2009   2010   2009
 
Net income (loss) - as reported $ (8,116 ) $ 16,879 $ 204,370 $ (9,802 )
 
Adjustments for certain non-cash items:
Unrealized mark-to-market loss on commodity and interest rate derivatives 140,961 67,248 73,501 239,273
Impairments of long-lived assets 5,947 1,256 11,614 7,880
Discontinued operations, includes gain on sale of assets (29,112 ) 1,255 (25,545 ) 4,317
Leasehold abandonments 3,672 446 7,575 5,056
Tax impact (a) (46,401 ) (26,898 ) (25,649 ) (96,659 )
Change in state statutory effective income tax rate   8,278     (6,556 )   8,278     (6,556 )
Adjusted net income $ 75,229   $ 53,630   $ 254,144   $ 143,509  
 
Adjusted basic earnings per share:
Adjusted net income per share $ 0.76 $ 0.63 $ 2.75 $ 1.69
Weighted average shares used in adjusted basic earnings per share 99,014 85,247 92,542 84,912
 
Adjusted diluted earnings per share:
Adjusted net income per share $ 0.75 $ 0.62 $ 2.71 $ 1.67
Weighted average shares used in adjusted diluted earnings per share     100,386  

 

  86,521       93,837  

 

  86,060  

(a)

 

The tax impact is computed utilizing the Company's statutory effective federal and state income tax rates excluding the effects of permanent rate differences. The income tax rates for (i) the three months ended December 31, 2010 and 2009 was 38.20% and 38.31%, respectively, and (ii) for the years ended December 31, 2010 and 2009 was 38.20% and 37.68%, respectively.

The following table provides a reconciliation of cash flow from operating activities (GAAP) to adjusted cash flow (non-GAAP):

         
  Years Ended December 31,
(in thousands)   2010   2009
 
Cash flows from operating activities $ 651,582 $ 359,546
Settlements received from (paid on) derivatives not designated as hedges (a)   (13,824 )   82,416
Cash flows from operating activities adjusted for settlements received from (paid on) derivatives
not designated as hedges $ 637,758   $ 441,962
         
 

(a) Amounts are presented in cash flows from investing activities for GAAP purposes.

 

Concho Resources Inc.

Costs Incurred

Unaudited

The following table provides the costs incurred for the three and twelve months ended December 31, 2010 and 2009:

 

Costs incurred for oil and natural gas producing activities (a)

       
Three Months Ended Years Ended
December 31, December 31,
(in thousands)   2010   2009   2010   2009
 
Property acquisition costs:
Proved $ 1,206,877 $ 207,292 $ 1,224,378 $ 205,817
Unproved 443,785 62,492 475,688 74,692
Exploration 64,124 23,100 200,797 134,105
Development   158,400   85,948   492,622   265,731
Total costs incurred for oil and natural gas properties $ 1,873,186 $ 378,832 $ 2,393,485 $ 680,345
                         
(a)   The costs incurred for oil and natural gas producing activities includes the following amounts of asset retirement obligations:
  Three Months Ended   Years Ended
December 31, December 31,
(in thousands)   2010   2009   2010   2009
   
Proved property acquisition costs $ 8,290 $ 488 $ 8,290 $ 488
Exploration costs 211 302 784 452
Development costs   14,838   7,843   13,611   5,425
Total $ 23,339 $ 8,633 $ 22,685 $ 6,365

 

Concho Resources Inc.

Derivatives Information at February 23, 2011

Unaudited

The table below provides data associated with our derivatives at February 23, 2011.

                                         
    2011        
First   Second   Third   Fourth  
Quarter Quarter Quarter Quarter Total 2012 2013 2014 2015
 
Oil Swaps:
Volume (Bbl) 2,919,436 2,721,436 2,480,436 2,308,436 10,429,744 7,961,000 2,460,000 1,248,000 600,000
NYMEX price (Bbl) (a) $ 83.03 $ 83.50 $ 83.54 $ 83.62 $ 83.40 $ 91.44 $ 90.17 $ 83.94 $ 84.50
 
Natural Gas Swaps:
Volume (MMBtu) 1,569,000 3,069,000 3,069,000 3,069,000 10,776,000 300,000 - - -
NYMEX price (MMBtu) (b) $ 6.36 $ 6.62 $ 6.62 $ 6.62 $ 6.58 $ 6.54 - - -
 
Natural Gas Collars:
Volume (MMBtu) $ 1,500,000 - - - 1,500,000 - - - -
NYMEX price (MMBtu) (b)
Ceiling $ 6.80 - - - $ 6.80 - - - -
Floor $ 6.00 - - - $ 6.00 - - - -
 
Natural Gas Basis Swaps:
Volume (MMBtu) 1,800,000 1,800,000 1,800,000 1,800,000 7,200,000 - - - -
Price differential ($/MMBtu) (c) $ 0.87 $ 0.76 $ 0.76 $ 0.76 $ 0.79 - - - -
 
Interest Rate Swaps:
Notional Amount $ 300,000,000 $ 300,000,000 $ 300,000,000 $ 300,000,000 $ 300,000,000 $ 300,000,000 - - -
Annual Rate (d) 1.90 % 1.90 % 1.90 % 1.90 % 1.90 % 1.90 % - - -
                                                                       

(a)

The index prices for the oil contracts are based on the NYMEX-West Texas Intermediate monthly average futures price.

(b)

The index prices for the natural gas contracts are based on the NYMEX-Henry Hub last trading day of the month futures price.

(c)

The basis differential between the El Paso Permian delivery point and NYMEX-Henry Hub delivery point.

(d)

 

The index rate is based on the one-month LIBOR. Interest rate swap contracts terminate in May 2012.

Contacts

Concho Resources Inc.
Toffee McAlister, 432-683-7443
Director, Investor Relations and Corporate Communication

Contacts

Concho Resources Inc.
Toffee McAlister, 432-683-7443
Director, Investor Relations and Corporate Communication