Energy Prospectus

MIDLAND, Texas--(BUSINESS WIRE)-- Concho Resources Inc. (NYSE: CXO) (the “Company” or “Concho”) reported financial and operating results for first-quarter 2019.
My comments are in blue - Dan.

First-Quarter 2019 Highlights

Achieved record oil production of 210 MBopd, a 46% increase over first-quarter 2018 and 6% over fourth-quarter 2018. < Compares to my forecast of 198.5 MBopd.

Delivered total production of 328 MBoepd, exceeding the high end of the Company’s quarterly guidance range. < Compares to my forecast of 306 MBoepd.

Reduced per unit controllable cash costs year-over-year, with a 7% reduction in production expenses.

Raised full-year 2019 production growth outlook, while maintaining capital expenditure guidance. < This is VERY GOOD NEWS.

Announced sale of the Oryx I oil gathering and transportation system, with expected net proceeds of approximately $300 million.

Reported a net loss of $695 million, or ($3.49) per share. Adjusted net income (non-GAAP) totaled $144 million, or $0.72 per share. < Compares to my EPS forecast of $0.66.

Generated $755 million of adjusted EBITDAX (non-GAAP). < Compares to my forecast of $734 million EBITDAX.

Tim Leach, Chairman and Chief Executive Officer, commented, “We are delivering exceptional performance across our portfolio as we execute on our clear strategy to drive sustained, differentiated oil growth, free cash flow and corporate returns. Results for the first quarter of 2019 reflect our focus on large-scale development, controlling costs and generating solid returns on strategic investments, as demonstrated by the Oryx sale. During the quarter, we completed several important projects ahead of schedule, driving increased production that exceeded the high end of our guidance range. Given our strong start to the year, we are raising our full-year production growth outlook while maintaining our capital expenditure guidance. Our high-quality assets and returns-driven approach position us to extend our track record of enhancing value for shareholders.”

I am working on the Concho forecast/valuation model. It will be posted to the EPG website this afternoon.

I have updated my forecast/valuation model for CXO and I am increasing my valuation by $6 to $164/share.

Gabriele Sorbara at Williams Capital just updated his report on CXO. He rates it a BUY with a price target of $182.

I get asked all the time, "Why does your valuation differ from this analyst's price target at XYZ Wall Street firm?" Here are the primary reasons:

1. Their firm required them to use a different commodity price deck.

2. Their valuation is not current. For example, today there are 32 analysts' reports included in the Reuters / First Call price target for CXO. Only one of the 32 reports is dated after Concho's Q1 results came out. First Call's estimates are always outdated, but they are looked at by lots of investors. It is the direction of the move in First Call's estimates after quarterly results that are more important. It is a good bet that FC's price target for CXO will be higher in a couple of weeks.

3. Some firms base their valuations / price targets on the low end of the company's production guidance. Concho likes to "Under-Promise & Over-Deliver" on guidance. Example, their Q1 results were much higher than their guidance.

4. My valuations are what I think the company's valuation is today; What it would sell for in an arms-length bidding war. Example, why APC is going to eventually sell to Chevon or OXY at what it is worth, not what was trading for before the bidding war started.

A public upstream company should never have a market-cap below this: Current Assets + PV10 of their proven reserves - Total Debt. < This is where the bidding should begin in a takeover attempt.
-----------------------------
PS: Concho's "Reported Net Income" or GAAP was a loss of $695 million. It includes a $1,059 million non-cash mark-to-market write-down of their hedges. Everyone knows that the GAAP/SEC accounting rules for hedges are stupid and misleading. This is why Cash Flow From Operations is the most important number in each quarter's results.