Concho Resources (CXO) Q1 Results - April 30

[dan_s]

First-Quarter 2020 Highlights with my comments in blue.

Delivered oil production volumes of 209 MBopd, exceeding the high end of the Company’s guidance range. < Compares to my oil production forecast of 208,000 BOPD.

Generated cash flow from operating activities of $836 million. Operating cash flow before working capital changes (non-GAAP) was $744 million < compares to my forecast of $576.6 million CF from Operations, exceeding capital expenditures of $556 million and resulting in $188 million of free cash flow (non-GAAP).

Included in the Company’s first-quarter 2020 results are $12.6 billion in impairment charges related to the substantial weakness in commodity prices. As such, the Company reported a net loss of $9.3 billion, or $47.49 per share.

Adjusted net income (non-GAAP) totaled $142 million, or $0.72 per share. < Compares to my forecast of $20.3 million or $0.10 per share.

Generated $784 million of adjusted EBITDAX (non-GAAP).

Returned capital to shareholders through the Company’s common dividend of $0.20 per share, up 60% year over year, and $100 million of share repurchases.

2020 Outlook Update

Further reducing planned capital expenditures to $1.6 billion, representing a 40% decrease from the Company’s initial capital spending expectations for the year.
Targeting $100 million in operating and G&A cost reductions.

The Company expects production to remain relatively consistent with 2019 divestiture-adjusted production volumes. The Company’s production outlook includes current voluntary curtailments, but does not include any potential future curtailments.

Tim Leach, Chairman and Chief Executive Officer, commented, “This is an extremely challenging environment, but our first priority is the safety and well-being of our employees, business partners and communities. Due to the hard work and dedication of our team, we delivered strong operational and financial results for the first quarter. The operating environment has changed considerably since our last update, and we expect a sustained period of low commodity prices. We are managing through the volatility and uncertainty from a position of strength, which we are focused on maintaining by aligning our operations with current market realities. We are further reducing capital spending in 2020 and targeting $100 million in operating cost reductions. We expect these actions will improve our capital efficiency and better position Concho to deliver value over the long term.”

Concho will generate very strong cash flow this year because over 80% of their oil production is hedged at more than $54/bbl.

[dan_s]

More important paragraph in the press release:
"The Company’s commodity derivatives strategy mitigates Concho’s exposure to commodity price fluctuations. For the remainder of 2020, Concho has crude oil swap contracts covering approximately 138 MBopd and 25 MBopd at weighted average prices of $54 per Bbl WTI and $54 per Bbl Brent, respectively. Additionally, the Company has approximately 140 MBopd of Midland-Cushing oil basis swaps at a weighted average price of $(0.64) per Bbl, which mitigates exposure to field-level pricing weakness. At March 31, 2020, Concho had a net derivative asset of approximately $1.5 billion."

On April 30, Concho's hedges have a cash value of approximately $2.2 Billion. < This compares to their total LT Debt of approximately $4.0 Billion.

[dan_s]

Just to show what total BS GAAP accounting rules are for upstream companies, Concho reported a 1st quarter net loss of $9.3 billion, or $47.49 per share and it was really an outstanding quarter. "Adjusted Net Income", which doesn't include the confusing non-cash items required by SEC / GAAP was positive net income $142 million, or $0.72 per share, which beat all analysts forecasts.

I have updated my forecast/valuation model for CXO and it will be posted to the EPG website later today.
CXO closed today at $56.72
My valuation increases $1.00 to $64.00.
First Call's price target is $68.07.

[dan_s]

Stifel's take - May 1
Concho Resources Inc. (CXO, $56.72, Buy; Target $65.00)

Concho reinforces its position as one of the best positioned E&Ps to navigate through this challenging environment - Derrick Whitfield

We view this release as positive. The positives include: i) a total equivalent and oil production beat (0.3% and 0.5% above consensus, respectively) on materially lower than expected capex (11.2% below consensus), ii) an adjusted EBITDAX beat (0.7% above consensus), iii) revised 2020 guidance that implies strong capital efficiency (total equivalent and oil production 3.2% and 4.0% below consensus, respectively, and capex 17.8% below consensus), and iv) expected substantial FCF in 2020 supported by the announced $100 million in further operating cost reductions during 2020. The only perceived negative is lower than expected 2020 production guidance; however, we would encourage investors to note that capex is 17.8% below consensus, which implies improving capital efficiency. Net-net, we believe Concho reinforced its position as one of the best positioned E&Ps to navigate through this challenging environment.