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Form 8-K CONCHO RESOURCES INC For: May 04

May 4, 2016 5:02 PM EDT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 4, 2016

Concho Resources Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)

001-33615   76-0818600
(Commission File Number) (I.R.S. Employer Identification No.)
 

One Concho Center

600 West Illinois Avenue

Midland, Texas

79701
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (432) 683-7443

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




TABLE OF CONTENTS

Item 2.02 Results of Operations and Financial Condition
Item 9.01 Financial Statements and Exhibits
SIGNATURES
EXHIBIT INDEX
EX-99.1


Item 2.02 Results of Operations and Financial Condition.

On May 4, 2016, Concho Resources Inc. (the “Company”) issued a press release announcing its financial and operating results for the three months ended March 31, 2016 (the “Earnings Release”). A copy of the Company’s Earnings Release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.   Description of Exhibit
 

99.1

Press release dated May 4, 2016, announcing financial and operating results for the three months ended March 31, 2016.

THE INFORMATION CONTAINED IN THIS CURRENT REPORT, INCLUDING THE EXHIBITS ATTACHED HERETO, SHALL NOT BE DEEMED “FILED” FOR THE PURPOSES OF SECTION 18 OF THE SECURITIES AND EXCHANGE ACT OF 1934, NOR SHALL THEY BE DEEMED INCORPORATED BY REFERENCE INTO ANY REGISTRATION STATEMENT OR OTHER FILING PURSUANT TO THE SECURITIES ACT OF 1933, EXCEPT AS OTHERWISE EXPRESSLY STATED IN SUCH FILING.


SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

CONCHO RESOURCES INC.
 

Date: May 4, 2016

By:

/s/ Travis L. Counts

Name:  

Travis L. Counts

Title:

Vice President and General Counsel


EXHIBIT INDEX

Exhibit No.   Description of Exhibit
 

99.1

Press release dated May 4, 2016, announcing financial and operating results for the three months ended March 31, 2016.

Exhibit 99.1

Concho Resources Inc. Reports First Quarter 2016 Results

MIDLAND, Texas--(BUSINESS WIRE)--May 4, 2016--Concho Resources Inc. (NYSE: CXO) (the “Company” or “Concho”) today reported financial and operating results for the first quarter of 2016.

Highlights

  • Delivered quarterly production of 12.7 million Boe, or 139.5 MBoepd, exceeding the high end of the Company’s guidance.
  • Executed a disciplined capital program within cash flow and further strengthened the Company’s balance sheet, with a cash position of approximately $0.5 billion at quarter end.
  • Achieved per-unit lease operating expense below the low end of the Company’s guidance.
  • Closed two transactions, further enhancing the Company’s high-quality portfolio and reinforcing Concho’s financial position.

Tim Leach, Chairman, Chief Executive Officer and President, commented, “Concho delivered a strong first quarter, with results ahead of expectations. Our per-unit cost structure trended lower, and drilling and completion capital was well within cash flow. Our success is a direct result of our high-quality drilling inventory across all our assets in the Permian Basin and our relentless focus on driving low costs and optimizing field development. During the first quarter, we also closed two transactions that high-graded the portfolio – selling lower rate of return assets, while adding top tier acreage – resulting in improved leverage metrics and additional cash on our balance sheet. With a strong financial position and premier asset base, we are well-positioned to execute a disciplined, returns-based capital plan and deliver differentiated value over the long term.”

First-Quarter 2016 Operations Summary

Production for the first quarter of 2016 was 12.7 million barrels of oil equivalent (MMBoe), or an average of 139.5 thousand Boe per day (MBoepd), an increase of 6% from the first quarter of 2015 and above the high end of the Company’s guidance. First-quarter 2016 production was comprised of 64% oil and 36% natural gas.

During the first quarter of 2016, Concho averaged 10 rigs, compared to 12 rigs in the fourth quarter of 2015. Concho started drilling or participating in a total of 40 gross wells (31 operated) and completed 50 gross wells during the first quarter of 2016. The table below summarizes the Company’s drilling activity by core area for the first quarter of 2016.

           
Number of Wells Drilled

(Gross)

Number of Operated Wells Drilled

(Gross)

Number of Wells Completed

(Gross)

Delaware Basin 27 21 33
New Mexico Shelf 8 6 12
Midland Basin 5 4 5
Total 40 31 50
 
Percent Horizontal 100% 100% 98%
 

Delaware Basin

Production from horizontal wells in the Delaware Basin totaled 80.0 MBoepd in the first quarter of 2016, up 16% over the first quarter of 2015. During the first quarter of 2016, Concho drilled 27 gross wells in the Delaware Basin, including five wells in the Avalon Shale, nine wells in the Bone Spring Sands and 13 wells in the Wolfcamp.

Concho added 11 new horizontal wells in the northern Delaware Basin with at least 30 days of production as of the end of the first quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 1,115 Boe per day (Boepd) (79% oil) and 1,521 Boepd, respectively. The average lateral length for these wells was 4,628 feet. The Company is testing multi-zone potential in the Avalon Shale. Successful results from the upper and lower Avalon targets were key drivers to the Company’s operational success in the first quarter of 2016.

Concho added four new horizontal wells in the southern Delaware Basin with at least 30 days of production as of the end of the first quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 1,035 Boepd (80% oil) and 1,374 Boepd, respectively. The average lateral length for these wells was 6,342 feet.

Concho closed the previously-announced acquisition of approximately 12,000 net acres in our core North Harpoon prospect in the southern Delaware Basin during the first quarter of 2016. The Company added two rigs to this acreage in April 2016.

The Company currently has eight horizontal rigs in the Delaware Basin, with four horizontal rigs in the northern Delaware Basin and four horizontal rigs in the southern Delaware Basin.

Midland Basin

Concho added two new horizontal wells with at least 30 days of production as of the end of the first quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 1,163 Boepd (87% oil) and 1,296 Boepd, respectively, from an average lateral length of 10,326 feet. Both wells were drilled from the same pad location and successfully tested stacked development of the Wolfcamp A and B zones.

The Company currently has one horizontal rig in the Midland Basin, with plans to add two rigs during May 2016.

New Mexico Shelf

In the New Mexico Shelf, Concho added nine new horizontal wells with at least 30 days of production as of the end of the first quarter of 2016. The average peak 30-day and 24-hour rates for these wells were 430 Boepd (84% oil) and 588 Boepd, respectively. The average lateral length for these wells was 4,475 feet. Strong results in the New Mexico Shelf were primarily attributable to ongoing completion design optimization.

The Company currently has two horizontal rigs in the New Mexico Shelf.


First-Quarter 2016 Financial Summary

Concho’s average realized price for oil and natural gas for the first quarter of 2016, excluding the effect of commodity derivatives, was $22.34 per Boe, compared with $34.76 per Boe for the first quarter of 2015.

Net loss for the first quarter of 2016 was $1.0 billion, or $7.95 per diluted share, compared to net income of $7.5 million, or $0.06 per diluted share, for the first quarter of 2015. Adjusted net loss (non-GAAP), which excludes non-cash and unusual items, for the first quarter of 2016 was $7.0 million, or $0.05 per diluted share, compared with adjusted net income (non-GAAP) of $42.1 million, or $0.36 per diluted share, for the first quarter of 2015.

EBITDAX (non-GAAP) for the first quarter of 2016 totaled $382.2 million, compared to $407.5 million for the first quarter of 2015.

Cash flows generated from operating activities for the three months ended March 31, 2016, totaled $112.3 million, compared with $126.2 million for the same period last year. Adjusted cash flows (non-GAAP), which are cash flows from operating activities adjusted for settlements on derivatives, were $370.2 million for the three months ended March 31, 2016, as compared to $293.4 million for the same period last year.

See “Supplemental Non-GAAP Financial Measures” at the end of this press release for a description of non-GAAP measures adjusted net income (loss), adjusted earnings per share, EBITDAX and adjusted cash flows and a reconciliation of these measures to the associated GAAP measures.

Credit Facility and Liquidity Update

Concho completed the annual redetermination of its credit facility in April 2016. The bank group reaffirmed the commitment amount of $2.5 billion and reduced the borrowing base amount to $2.8 billion due to lower commodity prices.

At March 31, 2016, Concho had cash of approximately $0.5 billion, long-term debt of $3.3 billion, and a net debt-to-EBITDAX ratio of 1.7 times. Concho currently has no outstanding borrowings on its credit facility, providing the Company with total liquidity of approximately $3.0 billion.

Commodity Derivatives Update

The Company enters into commodity derivatives to manage its exposure to commodity price fluctuations. For the remainder of 2016, Concho has crude oil swap contracts covering approximately 60.0 MBopd at a weighted average price of $69.37 per Bbl. The Company also has crude oil swaps for 2017 and 2018, covering approximately 52.4 MBopd and 17.9 MBopd at a weighted average price of $55.36 per Bbl and $48.42 per Bbl, respectively. Please see the table under “Derivatives Information” below for detailed information about the Company’s current derivatives positions.

Outlook

For the second quarter of 2016, Concho expects production to average between 138 MBoepd and 142 MBoepd. In addition, Concho updated its full-year 2016 outlook for certain items. The following table summarizes the Company’s current guidance for those items, as compared to the Company’s prior guidance.

   
Full Year 2016
Prior     Current
Annual production growth -5% - 0% 0%

Crude oil differential to NYMEX, excluding commodity derivatives ($/Bbl)

($3.75) - ($4.25)

($3.50) - ($4.00)

Lease operating expense ($/Boe) $7.50 - $8.00 $7.25 - $7.75
Depreciation, depletion and amortization expense ($/Boe) $24.00 - $26.00 $22.00 - $24.00
 

Conference Call

Concho will discuss first quarter 2016 results on a conference call tomorrow, May 5, 2016, at 8:30 AM CT (9:30 AM ET). The telephone number and passcode to access the conference call are provided below:

Dial-in: (855) 445-9894
Intl. dial-in: (330) 863-3281
Participant Passcode: 78705134

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

Concho Resources Inc.

Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development, exploration and production of oil and natural gas properties. The Company’s operations are focused in the Permian Basin of southeast New Mexico and west Texas. For more information, visit the Company’s website at www.concho.com.

Forward-Looking Statements and Cautionary Statements

The foregoing contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Company’s future financial position, operations, performance, business strategy, oil and natural gas reserves, drilling program, capital expenditure budget, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, derivative activities and potential financing. The words “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “could,” “may,” “foresee,” “plan,” “goal” or other similar expressions that convey the uncertainty of future events or outcomes are intended to identify forward-looking statements, which generally are not historical in nature. However, the absence of these words does not mean that the statements are not forward-looking. These statements are based on certain assumptions and analyses made by the Company based on management’s experience, expectations and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Forward-looking statements are not guarantees of performance. Although the Company believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include the risk factors discussed or referenced in the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q; risks relating to declines in the prices the Company receives, or sustained depressed prices the Company receives, for its oil and natural gas; uncertainties about the estimated quantities of oil and natural gas reserves; drilling and operating risks; the adequacy of the Company’s capital resources and liquidity including, but not limited to, access to additional borrowing capacity under its credit facility; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing and the export of oil and natural gas; the impact of potential changes in the Company’s credit ratings; environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater contamination; difficult and adverse conditions in the domestic and global capital and credit markets; risks related to the concentration of the Company’s operations in the Permian Basin of southeast New Mexico and west Texas; disruptions to, capacity constraints in or other limitations on the pipeline systems that deliver the Company’s oil, natural gas liquids and natural gas and other processing and transportation considerations; the costs and availability of equipment, resources, services and personnel required to perform the Company’s drilling and operating activities; potential financial losses or earnings reductions from the Company’s commodity price risk-management program; risks and liabilities associated with acquired properties or businesses; uncertainties about the Company’s ability to successfully execute its business and financial plans and strategies; uncertainties about the Company’s ability to replace reserves and economically develop its current reserves; general economic and business conditions, either internationally or domestically; competition in the oil and natural gas industry; uncertainty concerning the Company’s assumed or possible future results of operations; and other important factors that could cause actual results to differ materially from those projected.

Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.


 

Concho Resources Inc.

Consolidated Balance Sheets

Unaudited

 
             
March 31, December 31,
(in thousands, except share and per share amounts)       2016         2015  
Assets
Current assets:
Cash and cash equivalents $ 466,821 $ 228,550
Accounts receivable, net of allowance for doubtful accounts:
Oil and natural gas 191,698 203,972
Joint operations and other 168,545 190,608
Derivative instruments 527,769 652,498
Prepaid costs and other   33,734     38,922  
Total current assets   1,388,567     1,314,550  
Property and equipment:
Oil and natural gas properties, successful efforts method 16,217,487 15,846,307
Accumulated depletion and depreciation   (6,830,070 )   (5,047,810 )
Total oil and natural gas properties, net 9,387,417 10,798,497
Other property and equipment, net   182,473     178,450  
Total property and equipment, net   9,569,890     10,976,947  
Deferred loan costs, net 14,416 15,585
Intangible asset - operating rights, net 25,328 25,693
Inventory 19,311 19,118
Noncurrent derivative instruments 114,072 167,038
Other assets   154,937     122,945  
Total assets $ 11,286,521   $ 12,641,876  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable - trade $ 20,751 $ 13,200
Revenue payable 123,338 169,787
Accrued and prepaid drilling costs 267,235 228,523
Other current liabilities   193,624     184,910  
Total current liabilities   604,948     596,420  
Long-term debt 3,332,854 3,332,188
Deferred income taxes 1,046,796 1,630,373
Noncurrent derivative instruments 393 -
Asset retirement obligations and other long-term liabilities 142,758 140,344
Stockholders’ equity:

Common stock, $0.001 par value; 300,000,000 authorized; 131,973,782 and 129,444,042 shares issued at March 31, 2016 and December 31, 2015, respectively

132 129
Additional paid-in capital 4,874,546 4,628,390
Retained earnings 1,325,161 2,345,641

Treasury stock, at cost; 409,076 and 306,061 shares at March 31, 2016 and December 31, 2015, respectively

  (41,067 )   (31,609 )
Total stockholders’ equity   6,158,772     6,942,551  
Total liabilities and stockholders’ equity $ 11,286,521   $ 12,641,876  
 

           

 

Concho Resources Inc.

Consolidated Statements of Operations

Unaudited

 
Three Months Ended
March 31,
(in thousands, except per share amounts)       2016         2015  
 
Operating revenues:
Oil sales $ 242,154 $ 349,584
Natural gas sales   41,410     63,938  
Total operating revenues   283,564     413,522  
Operating costs and expenses:
Oil and natural gas production 114,957 125,535
Exploration and abandonments 22,860 5,755
Depreciation, depletion and amortization 310,082 267,205
Accretion of discount on asset retirement obligations 1,712 1,994
Impairments of long-lived assets 1,524,645 -

General and administrative (including non-cash stock-based compensation of $16,022 and $15,495 for the three months ended March 31, 2016 and 2015, respectively)

53,795 58,801
Gain on derivatives (79,842 ) (115,340 )
(Gain) loss on disposition of assets, net   (111,066 )   39  
Total operating costs and expenses   1,837,143     343,989  
Income (loss) from operations   (1,553,579 )   69,533  
Other income (expense):
Interest expense (54,138 ) (53,569 )
Other, net   (6,535 )   (4,302 )
Total other expense   (60,673 )   (57,871 )
Income (loss) before income taxes (1,614,252 ) 11,662
Income tax (expense) benefit   593,772     (4,150 )
Net income (loss) $ (1,020,480 ) $ 7,512  
Earnings per share:
Basic net income (loss) $ (7.95 ) $ 0.07
Diluted net income (loss) $ (7.95 ) $ 0.06
 

               

 Concho Resources Inc.

Consolidated Statements of Cash Flows

Unaudited

 
Three Months Ended
March 31,
(in thousands)     2016       2015  
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,020,480 ) $ 7,512
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization 310,082 267,205
Accretion of discount on asset retirement obligations 1,712 1,994
Impairments of long-lived assets 1,524,645 -
Exploration and abandonments, including dry holes 20,652 2,700
Non-cash stock-based compensation expense 16,022 15,495
Deferred income taxes (583,577 ) (11,031 )
(Gain) loss on disposition of assets, net (111,066 ) 39
Gain on derivatives (79,842 ) (115,340 )
Other non-cash items 5,282 2,612
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable 68,701 35,731
Prepaid costs and other (4,764 ) 649
Inventory (219 ) 3
Accounts payable 7,536 3,119
Revenue payable (44,335 ) (77,105 )
Other current liabilities   1,926     (7,334 )
Net cash provided by operating activities   112,275     126,249  
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures on oil and natural gas properties (379,799 ) (790,773 )
Additions to property, equipment and other assets (8,999 ) (8,147 )
Proceeds from the disposition of assets 292,013 -
Contributions to equity method investments (25,000 ) (20,000 )
Net settlements received from derivatives   257,930     167,156  
Net cash provided by (used in) investing activities   136,145     (651,764 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt - 739,000
Payments of debt - (878,500 )
Exercise of stock options 11 57
Excess tax benefit (deficiency) from stock-based compensation (702 ) 464
Net proceeds from issuance of common stock - 741,184
Purchase of treasury stock (9,458 ) (3,151 )
Decrease in bank overdrafts   -     (73,539 )
Net cash provided by (used in) financing activities   (10,149 )   525,515  
Net increase in cash and cash equivalents 238,271 -
Cash and cash equivalents at beginning of period   228,550     21  
Cash and cash equivalents at end of period $ 466,821   $ 21  
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for a business combination $ 230,828 $ -

       
Concho Resources Inc.
Summary Production and Price Data
Unaudited
 

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

Three Months Ended
March 31,
            2016     2015
   
Production and operating data:
Net production volumes:
Oil (MBbl) 8,100 8,066
Natural gas (MMcf) 27,557 22,985
Total (MBoe) 12,693 11,897
 
Average daily production volumes:
Oil (Bbl) 89,011 89,622
Natural gas (Mcf) 302,824 255,389
Total (Boe) 139,482 132,187
 
Average prices:
Oil, without derivatives ($/Bbl) $ 29.90 $ 43.34
Oil, with derivatives ($/Bbl) (a) $ 60.90 $ 63.20
Natural gas, without derivatives ($/Mcf) $ 1.50 $ 2.78
Natural gas, with derivatives ($/Mcf) (a) $ 1.75 $ 3.08
Total, without derivatives ($/Boe) $ 22.34 $ 34.76
Total, with derivatives ($/Boe) (a) $ 42.66 $ 48.81
 
Operating costs and expenses per Boe:
Lease operating expenses and workover costs $ 7.28 $ 7.64
Oil and natural gas taxes $ 1.78 $ 2.91
Depreciation, depletion and amortization $ 24.43 $ 22.46
General and administrative $ 4.24 $ 4.95
                       
 
(a) Includes the effect of net cash receipts from derivatives:
                   
Three Months Ended
March 31,
(in thousands)   2016     2015
 
Net cash receipts from derivatives:
Oil derivatives $ 251,127 $ 160,186
Natural gas derivatives   6,803   6,970
Total $ 257,930 $ 167,156
                 
 
The presentation of average prices with derivatives is a non-GAAP measure as a result of including the net cash receipts from commodity derivatives that are presented in the Company’s statements of cash flows. This presentation of average prices with derivatives is a means by which to reflect the actual cash performance of the Company’s 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.
Costs Incurred
Unaudited
 

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

 
Three Months Ended
March 31,
(in thousands)     2016     2015
 
Property acquisition costs:
Proved $ 252,352 $ -
Unproved 138,640 16,013
Exploration 170,572 429,169
Development   83,104   301,744
Total costs incurred for oil and natural gas properties $ 644,668 $ 746,926

           
Concho Resources Inc.
Derivatives Information
Unaudited
 

The table below provides data associated with the Company’s derivatives at May 4, 2016, for the periods indicated:

 
2016  
Second

Quarter

Third

Quarter

Fourth Quarter Total 2017   2018
 
Oil Swaps: (a)
Volume (Bbl) 5,985,000 5,460,000 5,054,000 16,499,000 19,110,000 6,540,000
Price per Bbl $ 73.38 $ 74.21 $ 59.38 $ 69.37 $ 55.36 $ 48.42
 
Oil Basis Swaps: (b)
Volume (Bbl) 5,914,000 5,520,000 5,060,000 16,494,000 14,276,000 -
Price per Bbl $ (1.46 ) $ (1.46 ) $ (1.48 ) $ (1.47 ) $ (0.90 ) $ -
 
Natural Gas Swaps: (c)
Volume (MMBtu) 7,280,000 7,360,000 7,360,000 22,000,000 11,855,000 -
Price per MMBtu $ 3.02 $ 3.02 $ 3.02 $ 3.02 $ 3.00 $ -
                                       
 
(a) The index prices for the oil contracts are based on the New York Mercantile Exchange (“NYMEX”) – West Texas Intermediate (“WTI”) monthly average futures price.
(b) The basis differential price is between Midland – WTI and Cushing – WTI.
(c) The index prices for the natural gas price swaps are based on the NYMEX – Henry Hub last trading day futures price.
 

Concho Resources Inc.
Supplemental Non-GAAP Financial Measures
Unaudited

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 net income (loss) and earnings per share to exclude certain non-cash and unusual items and cash flows from operating activities to adjust for settlements on derivatives.

Adjusted Net Income (Loss) and Adjusted Earnings per Share

The following table provides a reconciliation from the United States generally accepted accounting principles (GAAP) measure of net income (loss) to adjusted net income (loss) (non-GAAP) for the periods indicated:

       
Three Months Ended
March 31,
(in thousands, except per share amounts)     2016       2015  
 
Net income (loss) - as reported $ (1,020,480 ) $ 7,512
 
Adjustments for certain non-cash and unusual items:
Gain on derivatives (79,842 ) (115,340 )
Net cash receipts from derivatives 257,930 167,156
Impairments of long-lived assets 1,524,645 -
Leasehold abandonments 20,652 1,919
(Gain) loss on disposition of assets and other (109,501 ) 39
Tax impact   (600,365 )   (19,144 )
Adjusted net income (loss) $ (6,961 ) $ 42,142  
 
Adjusted earnings per share:
Basic net income (loss) $ (0.05 ) $ 0.37
Diluted net income (loss) $ (0.05 ) $ 0.36
 

Adjusted Cash Flows

The following table provides a reconciliation of the GAAP measure of cash flows from operating activities to adjusted cash flows (non-GAAP) for the periods indicated:

               
Three Months Ended
March 31,
(in thousands)     2016     2015
 
Cash flows from operating activities $ 112,275 $ 126,249
Settlements received from derivatives (a)   257,930   167,156
Adjusted cash flows $ 370,205 $ 293,405
                         
 
(a) Amounts are presented in cash flows from investing activities for GAAP purposes.

EBITDAX

EBITDAX (as defined below) is presented herein and reconciled from the GAAP measure of net income (loss) 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.

The Company defines 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) gain on derivatives, (7) net cash receipts from derivatives, (8) (gain) loss on disposition of assets, net, (9) interest expense and (10) federal and state income tax expense (benefit). EBITDAX is not a measure of net income (loss) 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 (loss) 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 assets, none of which are components of EBITDAX. 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 (loss) to EBITDAX (non-GAAP) for the periods indicated:

       
Three Months Ended
March 31,
(in thousands)   2016     2015  
 
Net income (loss) $ (1,020,480 ) $ 7,512
Exploration and abandonments 22,860 5,755
Depreciation, depletion and amortization 310,082 267,205
Accretion of discount on asset retirement obligations 1,712 1,994
Impairments of long-lived assets 1,524,645 -
Non-cash stock-based compensation 16,022 15,495
Gain on derivatives (79,842 ) (115,340 )
Net cash receipts from derivatives 257,930 167,156
(Gain) loss on disposition of assets, net (111,066 ) 39
Interest expense 54,138 53,569
Income tax expense (benefit)   (593,772 )   4,150  
EBITDAX $ 382,229   $ 407,535  

CONTACT:
Concho Resources Inc.
Investor Relations:
Megan P. Hays, 432-685-2533
Director of Investor Relations
or
Mary Tennant, 432-221-0477
Senior Financial Analyst



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