CXO

[dan_s]

Overall production came in slightly below my forecast, but oil production came in way above my forecast. As a result, revenues should top my forecast. GREAT year-end reserve report. - Dan
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Concho Resources Inc. (CXO) (“Concho” or the “Company”) today provided a 2013 operational update, including full-year production, year-end estimated proved reserves and costs incurred. Highlights include:
• Full-year production of 33.6 million barrels of oil equivalent (“MMBoe”), a 20% increase over 2012 production from continuing operations
• Year-end estimated proved reserves of 503 MMBoe, a 13% increase over year-end 2012
• Reserve replacement ratio1 of 266%
• Drill-bit finding and development (“F&D”) costs of $16.79 per Boe

1 The Company uses the reserve replacement ratio as an indicator of the Company's ability to replenish 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 discoveries and property acquisitions. Its predictive and comparative value is also limited for the same reasons. In addition, since the ratio does not embed the cost or timing of future production of new reserves, it cannot be used as a measure of value creation. The reserve replacement ratio of 266% was calculated by dividing net proved reserve additions of 89.4 MMBoe (the sum of extensions, discoveries, revisions and purchases) by production of 33.6 MMBoe.

During 2013, Concho delivered another strong year of organic reserve additions. Through extensions and discoveries, the Company added over 105 MMBoe of proved reserves and replaced 266% of full-year 2013 production after adjusting for revisions. Proved reserves growth in 2013 reflected the Company’s robust development and exploration activities in the Permian Basin, where Concho is one of the largest and most active producers.

“We continue to focus our concentration on high-growth, high-return, crude oil assets across the Permian Basin,” commented Tim Leach, Chairman, Chief Executive Officer and President. “The success of our drilling program has unlocked vast resource development opportunities in both the Delaware and Midland Basins. Going forward, I expect the robust returns from our engineered drilling inventory, plus the incremental resource potential throughout our portfolio will continue to drive organic proved reserves growth for years to come.”

The Delaware Basin, in particular, remains Concho’s most significant area of capital investment and proved reserves growth. While the Company believes the Delaware Basin is a premier oil play, limited development history currently constrains the magnitude of proved reserves additions. During 2013, the Company deployed $1 billion to the Delaware Basin, representing 63% of its total capital spent. At year-end 2013, estimated proved reserves in the Delaware Basin had increased 69% over year-end 2012, but represented only 27% of the Company’s total estimated proved reserves.

“The Delaware Basin will feature prominently in future capital programs, especially as we embark on our three-year plan to double production by year-end 2016,” said Tim Leach. “Our confidence in the quality and scale of the resource opportunity in the Delaware Basin, as well as the Midland Basin, is rapidly growing as we continue to push the productive boundaries across our acreage, delineate additional zones and test the potential for increased well density. Going forward, we plan to provide operational updates with more detail around resource potential and inventory depth beyond our set of engineered drilling locations.”

(The following information is unaudited and preliminary. Final results will be provided in the Annual Report on Form 10-K for the year ended December 31, 2013.)

Full-Year 2013 and Fourth Quarter Production

Concho’s production for 2013 totaled 33.6 MMBoe (21.1 MMBbls of crude oil and 75.1 Bcf of natural gas), a 20% increase over 2012 production from continuing operations and in line with the Company’s production growth guidance for 2013.

As previously disclosed, the Company experienced volume curtailment in the New Mexico Shelf core area due to midstream and infrastructure delays, resulting in an estimated net production loss of over 500,000 Boe during 2013. Adjusting for the New Mexico Shelf curtailment as well as the severe winter weather curtailment during the fourth quarter, the Company estimates that it would have delivered full-year 2013 production within the upper-half of its original guidance range.

Notably during the year, crude oil production grew 25% over 2012 production from continuing operations and represented 63% of total production as compared to 60% in 2012.

Production in the fourth quarter 2013 was 8.9 MMBoe (5.8 MMBbls of crude oil and 19.0 Bcf of natural gas), or 97.0 MBoe per day, a 14% increase over the comparable prior-year period. Sequentially, Concho’s total fourth quarter 2013 production increased 3% over the previous quarter and crude oil production during the fourth quarter increased 7% over the previous quarter, despite the weather-related curtailments. Fourth quarter 2013 was Concho’s 16th consecutive quarter to increase crude oil production from continuing operations over the immediately previous quarter.

2013 Year-end Estimated Proved Reserves and Costs Incurred

Concho’s year-end estimated proved reserves increased to 503 MMBoe. Year-end proved reserves were determined utilizing an average 2013 WTI posted oil price of $93.42 per barrel and an average 2013 Henry Hub spot market natural gas price of $3.67 per MMBtu. Substantially all of the Company’s proved reserves are located in the Permian Basin, which remains one of the most active and prolific oil basins in the continental U.S. The PV-10 of proved reserves at year-end 2013 was $9.0 billion as compared to $8.3 billion at year-end 2012. Please refer to the attached table for a reconciliation of PV-10 to the standardized measure of discounted future net cash flows.

Crude oil represented over 61% of year-end estimated proved reserves, consistent with year-end 2012. In addition, 60% of Concho’s year-end estimated proved reserves were proved developed, consistent with year-end 2012 and reflective of the Company’s ability to consistently convert unproved resources into proved reserves.

Exploration and development activity was the primary driver in the Company’s 2013 proved reserves growth, adding 105 MMBoe of proved reserves in the year. The following reconciliation of Concho’s estimated proved crude oil and natural gas reserves for year-end 2013 is based on reports prepared by Cawley, Gillespie & Associates, Inc. and Netherland, Sewell & Associates, Inc., independent petroleum engineers

[dan_s]

Concho Resources Inc. (CXO): An updated Net Income & Cash Flow Forecast model has been posted under the Sweet 16 Tab.

I have increased my Fair Value Estimate to $127.00/share, which compares to First Call's Price Target of $125.21.

How I calculate "Fair Value" is show at the bottom of each forecast model.

Note: CXO now has 67% of forecast oil production hedged at $92.27/bbl, therefore the commodity price risk is quite limited on this one.