Concho Resources (CXO) Q4 Results - Feb 19

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Concho Resources (CXO) Q4 Results - Feb 19

Post by dan_s »

MIDLAND, Texas--(BUSINESS WIRE)-- Concho Resources Inc. (NYSE: CXO) (the “Company” or “Concho”) today reported results for fourth-quarter and full-year 2018. My comments are in blue. - Dan.

2018 Highlights

Delivered full-year production of 263 MBoepd (64% oil), in-line with the high-end of the Company’s guidance range. < my forecast was 261.9 MBoepd.
Generated $2.6 billion of cash from operating activities, exceeding $2.5 billion of cash used in investing activities for additions to oil and natural gas properties.
Reported net income of $2.3 billion, or $13.25 per share. Adjusted net income (non-GAAP) totaled $792 million, or $4.59 per share.
Generated $2.8 billion of adjusted EBITDAX (non-GAAP).
Acquired and integrated RSP Permian, enhancing the Company’s scale advantage in the Permian Basin.
Advanced manufacturing-style development across asset portfolio, driving strong well performance with the Company’s average 30-day peak rate up 21% year-over-year on an absolute and lateral-adjusted basis.
Executed 15 asset trades, improving the Company’s development platform for large-scale, long-lateral manufacturing projects.
Divested non-core assets for $361 million in proceeds, bringing the Company’s total divestiture proceeds to approximately $1.5 billion since 2016.
Ended 2018 in a strong financial position with investment-grade credit ratings from Fitch, Moody’s and S&P.
Issued $1.6 billion aggregate senior notes and redeemed $1.2 billion of RSP’s aggregate senior notes. These debt management transactions reduce annual interest expense by more than $15 million (pro forma for RSP).
Received $157 million cash distribution from Oryx Southern Delaware Holdings, LLC.

2019 Outlook & Recent Events

Reducing 2019 planned capital expenditures to approximately $2.9 billion; moderating activity enhances free cash flow outlook and capital efficiency.
Expecting to generate 15% oil volume growth from fourth-quarter 2018 to fourth-quarter 2019.
Diversifying a portion of the Company’s oil sales to waterborne market pricing with a firm sales agreement covering 50 MBopd.

Tim Leach, Chairman and Chief Executive Officer, commented, “Last year was an exceptional year for Concho. Throughout the year, we demonstrated our ability to execute consistently, control costs and capitalize on opportunities to strengthen our competitive position, highlighted by the acquisition of RSP Permian. Our updated plans for 2019 improve our trajectory for free cash flow growth while maintaining strong operational efficiencies. The fundamentals of our business are strong, and in an increasingly dynamic macro environment, we are confident that our scale and the quality of our portfolio, as well as our high-margin cash flow and financial flexibility, will enable us to build value for our shareholders.”

Full-Year 2018 Summary

Total production for 2018 increased 36% to 96 million barrels of oil equivalent (MMBoe), or 263 thousand Boe per day (MBoepd), driven by a 41% increase in oil production to 168 thousand barrels per day (MBopd). Natural gas production for 2018 was 571 million cubic feet per day (MMcfpd).

For 2018, Concho’s average realized price for oil and natural gas, excluding the effect of commodity derivatives, was $56.22 per Bbl and $3.40 per Mcf, respectively, compared with $48.13 per Bbl and $3.07 per Mcf, respectively, for 2017.

Net income for 2018 was $2.3 billion, or $13.25 per share, compared with net income of $956 million, or $6.41 per share, in 2017. Excluding non-cash and special items, full-year 2018 adjusted net income was $792 million, or $4.59 per share, compared with adjusted net income of $311 million, or $2.09 per share, for full-year 2017.

Adjusted EBITDAX for 2018 totaled $2.8 billion, compared with $1.9 billion in 2017.

In 2018, cash flow from operating activities was approximately $2.6 billion, exceeding $2.5 billion in cash used for investing activities for additions to oil and natural gas properties.

Fourth-Quarter 2018 Summary

Production for fourth-quarter 2018 was 28 MMBoe, or an average of 307 MBoepd (Compares to my Q4 forecast of 304 MBoepd), an increase of 45% from fourth-quarter 2017 and 7% from third-quarter 2018. Average daily oil production for fourth-quarter 2018 totaled 199 MBopd, an increase of 53% from fourth-quarter 2017 and 8% from third-quarter 2018. Natural gas production for fourth-quarter 2018 totaled 649 MMcfpd.

Concho’s average realized price for oil and natural gas for fourth-quarter 2018, excluding the effect of commodity derivatives, was $49.10 per Bbl and $2.82 per Mcf, respectively, compared with $52.84 per Bbl and $3.33 per Mcf, respectively, for fourth-quarter 2017.

Net income for fourth-quarter 2018 was $1.5 billion, or $7.55 per share, compared with net income of $267 million, or $1.79 per share, for fourth-quarter 2017. Excluding non-cash and special items, fourth-quarter 2018 adjusted net income was $189 million, or $0.94 per share. < Compares to my forecast of $1.02 EPS, with primary difference a much lower natural gas price than I used in my Q4 forecast.

Adjusted EBITDAX for fourth-quarter 2018 totaled $751 million, compared with $513 million for fourth-quarter 2017.

Operations Update

During fourth-quarter 2018, Concho averaged 34 rigs, compared to 31 rigs in third-quarter 2018. The Company is currently running 34 rigs, including 22 rigs in the Delaware Basin and 12 rigs in the Midland Basin. Additionally, the Company is currently utilizing 7 completion crews.

Delaware Basin

In the Delaware Basin, excluding the New Mexico Shelf, the Company added 50 wells with at least 60 days of production as of the end of fourth-quarter 2018. The average 30-day and 60-day peak rates for these wells were 1,594 Boepd (73% oil) and 1,454 Boepd (72% oil), respectively. These wells were drilled to an average lateral length of 7,807 feet.

Achieving Strong Results with Large-Scale Development Projects in the Delaware Basin

Concho’s Gettysburg project includes five wells targeting the 3rd Bone Spring in the Deep area in Lea County, New Mexico. The average 30-day and 60-day peak rates for this project were 2,018 Boepd (79% oil) and 1,857 Boepd (79% oil) per well, respectively. The project’s average lateral length was 6,989 feet.

Concho recently completed the Square Bill project, which includes four wells targeting the 3rd Bone Spring and Wolfcamp A in the Red Hills area in Lea County, New Mexico. The average 30-day and 60-day peak rates for this project were 2,015 Boepd (82% oil) and 1,874 Boepd (82% oil) per well, respectively. The project’s average lateral length was 7,088 feet.

Midland Basin

In the Midland Basin, Concho added 23 wells with at least 60 days of production as of the end of fourth-quarter 2018. The average 30-day and 60-day peak rates for these wells were 1,202 Boepd (86% oil) and 1,070 Boepd (85% oil), respectively. These wells were drilled to an average lateral length of 7,869 feet.

Delivering Top-Tier Results in Midland Basin

Concho recently completed the Windham TXL project, which includes 11 wells targeting the Lower Spraberry and Wolfcamp B zones in Midland County, Texas. The average 30-day and 60-day peak rates for this project were 1,303 Boepd (83% oil) and 1,187 Boepd (82% oil) per well, respectively. The project’s average lateral length was 7,670 feet.

2018 Proved Reserves


At December 31, 2018, Concho’s estimated proved reserves totaled 1.2 billion Boe, compared to 840 million Boe at year-end 2017. The Company’s proved reserves are approximately 63% oil and 37% natural gas. Proved developed reserves totaled 824 MMBoe, or 69% of total proved reserves. < Very good news!.

Maintaining a Strong Financial Position

Concho maintains a strong financial position with investment-grade credit ratings, a low leverage ratio and substantial liquidity. At December 31, 2018, Concho had long-term debt of $4.2 billion, including $242 million of outstanding borrowings under its credit facility.

Outlook

Concho’s updated outlook for 2019 reinforces the Company’s commitment to generating shareholder value at all points in the cycle. Capital spending for 2019 is expected to be between $2.8 billion and $3.0 billion, representing a 17% reduction at the midpoint compared with the Company’s prior capital guidance. Additionally, the Company’s base plans for 2020 entail maintaining a consistent level of investment compared with 2019. Prioritizing capital discipline and moderating activity enhances Concho’s free cash flow outlook, capital efficiency and financial flexibility.

Approximately 94% of the 2019 capital program will be allocated to drilling and completion operations. The Company’s activity will be primarily focused on large-scale manufacturing projects across Concho’s portfolio and will keep the Company on track to deliver the value creation benefits of the RSP Permian, Inc. (“RSP”) acquisition. Concho’s planned activity for 2019 is expected to deliver oil growth of 26% to 30%, and the base plan for 2020 is expected to drive a two-year oil compound annual growth rate of 23% (from 2018 to 2020).

For first-quarter 2019, Concho expects production to average between 300 MBoepd and 306 MBoepd, and lease operating expense per Boe to average between $6.30 and $6.50. Additionally, Concho expects capital expenditures to total between $825 million and $875 million.

Detailed guidance for 2019 is provided under “2019 Guidance” below. The Company’s outlook for 2019 and 2020 excludes acquisitions and is subject to change without notice depending upon a number of factors, including commodity prices, industry conditions and other risks described under “Forward-Looking Statements and Cautionary Statements.”

Oil Marketing and Commodity Derivatives Update

Consistent with the Company’s strategy of diversifying its oil pricing, Concho entered into a firm sales agreement with a third-party purchaser. The purchaser provides an integrated transportation and marketing strategy, including ample dock capacity. The agreement covers 50 MBopd. Additionally, the barrels transported under this agreement will receive waterborne market pricing following the startup of Plains All American Pipeline LP’s Cactus II pipeline system.

The Company’s commodity derivatives strategy is intended to manage its exposure to commodity price fluctuations. Please see the table under “Derivatives Information” below for detailed information about Concho’s current derivatives positions.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Concho Resources (CXO) Q4 Results - Feb 19

Post by dan_s »

Proved Reserves were 840 MMBoe as of December 31, 2017
60% crude oil and 40% natural gas & NGLs

Proved reserves were 1,187 MMBOE as of December 31, 2018
63% crude oil and 37% natural gas & NGLs
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Concho Resources (CXO) Q4 Results - Feb 19

Post by dan_s »

I have updated my forecast/valuation model for CXO and it will be posted to the EPG website this evening.

My valuation "adjusts" to $160/share just because I am now using a much lower natural gas price in 1H 2019. I do expect oil prices to ramp up to more than what I am using in the forecast models, but for now I am only raising Q1 forecast oil prices in my models. Lack of pipeline takeaway capacity is killing the gas price in West Texas, but it will be resolved in six months.

Just FYI the hardest forecasts are when a company makes a large acquisition or a merger. Concho's merger with RSP Permian closed on 7/19/2018 and it makes Concho a "Power House" pure play on the Permian Basin that probably deserves a higher multiple than what I am using to value the stock. This one has many years of 20% annual growth locked in and they are funding all of the growth with cash flow from operations. CXO definitely deserves the "Elite Eight" label.
Dan Steffens
Energy Prospectus Group
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