Concho Resources Inc. Reports Second Quarter 2014 Financial and Operating Results

  Concho Resources Inc. Reports Second Quarter 2014 Financial and Operating   Results  Business Wire  MIDLAND, Texas -- August 6, 2014  Concho Resources Inc. (NYSE: CXO) (“Concho” or the “Company”) today reported financial and operating results for the second quarter and first half of 2014. Highlights for the second quarter of 2014 include:    *Average production totaled 107.8 thousand barrels of oil equivalent per     day (“MBoepd”) for the second quarter of 2014, at the high end of its     previously announced quarterly guidance range of 104 - 108 MBoepd   *Announced third quarter 2014 production guidance range of 113 - 116 MBoepd   *Added 31 new wells in the northern Delaware Basin with strong average     30-day and 24-hour peak rates of 931 and 1,420 Boepd, respectively   *Entered into agreements to acquire approximately 13,000 net acres for $95     million in the northern Delaware Basin^1   *Net income of $11.8 million, or $0.11 per diluted share, for the second     quarter of 2014, as compared to net income of $84.7 million, or $0.81 per     diluted share, for the second quarter of 2013   *Adjusted net income^2 (non-GAAP) of $113.8 million, or $1.04 per diluted     share, for the second quarter of 2014, as compared to $102.5 million, or     $0.98 per diluted share, for the second quarter of 2013   *EBITDAX^3 (non-GAAP) of $504.0 million for the second quarter of 2014, a     19% increase over the second quarter of 2013  ^1 Includes agreements entered into through August 6, 2014.  ^2 Adjusted net income (non-GAAP) is comparable to securities analyst estimates. For an explanation of how we calculate adjusted net income (non-GAAP) and a reconciliation of net income (GAAP) to adjusted net income (non-GAAP), please see "Supplemental Non-GAAP Financial Measures" below.  ^3 For an explanation of how we calculate and use EBITDAX (non-GAAP) and a reconciliation of net income (GAAP) to EBITDAX (non-GAAP), please see "Supplemental Non-GAAP Financial Measures" below.  Second Quarter 2014 Financial Results  Production for the second quarter of 2014 totaled 9.8 million barrels of oil equivalent (“MMBoe”) (6.2 million barrels of oil (“MMBbls”) and 21.5 billion cubic feet of natural gas (“Bcf”)), an increase of 18% as compared to 8.3 MMBoe (5.2 MMBbls of crude oil and 18.6 Bcf of natural gas) produced in the second quarter of 2013. Sequentially, Concho’s average daily production in the second quarter of 2014 increased 6% as compared to the previous quarter of 101.6 MBoepd.  “The second quarter was another exceptional quarter, demonstrating the strength of our team as we continue to execute on our Two-by-Three Growth Plan, which calls for doubling our production in three years,” commented Tim Leach, Chairman, Chief Executive Officer and President. “The advantage of running one of the Permian Basin’s largest horizontal operations is translating into operational efficiencies and improved returns.We are focusing on optimizing our well design and stimulation techniques. Efficiencies of scale and drilling and completion optimization are driving greater capital productivity as well as industry-leading well performance across the Permian Basin.”  For the second quarter of 2014, the Company reported net income of $11.8 million, or $0.11 per diluted share, as compared to net income of $84.7 million, or $0.81 per diluted share, for the second quarter of 2013. The Company’s second quarter 2014 results were impacted by several non-cash and unusual items including: (1) a $164.7 million loss on derivatives not designated as hedges, (2) $26.1 million in cash payments on commodity derivatives, (3) $11.2 million of leasehold abandonments, (4) a $4.3 million loss on extinguishment of debt and (5) a $9.6 million loss on disposition of assets. Excluding these items and their tax effects, second quarter 2014 adjusted net income (non-GAAP) was $113.8 million, or $1.04 per diluted share. Excluding similar non-cash and unusual items and their tax effects, adjusted net income (non-GAAP) for the second quarter of 2013 was $102.5 million, or $0.98 per diluted share. For a description and a reconciliation of net income (GAAP) to adjusted net income (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below.  EBITDAX (non-GAAP) was $504.0 million in the second quarter of 2014, an increase of 19% from $424.8 million in the second quarter of 2013. For a description and a reconciliation of net income (GAAP) to EBITDAX (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below.  Oil and natural gas sales for the second quarter of 2014 totaled $704.7 million and increased 25% compared to oil and natural gas sales of $562.8 million for the second quarter of 2013. The increase was attributable to an 18% increase in production in the second quarter of 2014 compared to the second quarter of 2013, and a 4% and 12% increase in the Company’s unhedged realized oil and gas price, respectively, in the second quarter of 2014 compared to the second quarter of 2013.  Oil and natural gas production expense for the second quarter of 2014, including oil and natural gas taxes, totaled $134.9 million, or $13.76 per barrel of oil equivalent (“Boe”), a 6% increase per Boe from the second quarter of 2013. This increase was due primarily to higher lease operating expenses (“LOE”) and workover costs, which averaged $8.15 per Boe in the second quarter of 2014 as compared to $7.25 per Boe in the second quarter of 2013.  Depreciation, depletion and amortization expense (“DD&A”) for the second quarter of 2014 totaled $237.4 million, or $24.20 per Boe, a 6% increase per Boe from the second quarter of 2013.  General and administrative expense (“G&A”) for the second quarter of 2014 totaled $49.5 million, or $5.05 per Boe, as compared to $41.0 million, or $4.94 per Boe, in the second quarter of 2013. Cash G&A expenses for the second quarter of 2014 totaled $39.8 million. The increase in per Boe expense for the second quarter of 2014 over the second quarter of 2013 was primarily due to an increase in staffing across the company, and was partially offset by an 18% increase in production.  The Company’s cash flow from operating activities (GAAP) was $854.7 million for the first six months of 2014, as compared to $487.1 million for the first six months of 2013, an increase of 75%. Adjusted cash flows (non-GAAP), which are cash flows from operating activities (GAAP) adjusted for settlements on derivatives not designated as hedges, were $813.8 million for the first six months of 2014, as compared to $494.7 million for the first six months of 2013, an increase of 65%. For a description of the use of adjusted cash flows (non-GAAP) and for a reconciliation of cash flows from operating activities (GAAP) to adjusted cash flows (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below.  Operations  For the quarter ended June 30, 2014, the Company started drilling or participated in a total of 134 gross wells (107 operated) and completed 107 wells as producers. The table below summarizes the Company’s gross drilling activities by core area for the second quarter of 2014:                     2Q 2014                      Total Wells   Operated Wells   Completed Wells Delaware Basin       75              60                 48 New Mexico Shelf     24              12                 29 Texas Permian        35             35                30        Total                134            107               107                                                                % Horizontal         78     %        79       %         68       %  The Company currently is operating 34 drilling rigs; 17 of these rigs are drilling in the northern Delaware Basin, 6 are drilling in the southern Delaware Basin, 2 are drilling in the New Mexico Shelf and 9 are drilling in the Texas Permian. Of the Company’s 34 operated rigs, 30 are drilling horizontally, including 17 in the northern Delaware Basin, 6 in the southern Delaware Basin, 2 in the New Mexico Shelf and 5 in the Texas Permian.  Delaware Basin  Of the 75 wells drilled in the Delaware Basin during the second quarter of 2014, 53 were Bone Spring sands wells, 14 were Wolfcamp shale wells, 5 were Brushy Canyon wells and 3 were Avalon shale wells. The Company’s net production in the second quarter of 2014 from horizontal Delaware Basin wells averaged approximately 49.1 MBoepd, a 55% increase over the second quarter of 2013 and an increase of 16% over the first quarter of 2014.  In the northern Delaware Basin, 31 new wells had at least 30 days of production by the end of the second quarter of 2014 and set new average production-rate records with an average 30-day rate of 931 Boepd (81% oil) and an average 24-hour peak rate of 1,420 Boepd from an average lateral length of 5,034 feet.  In the southern Delaware Basin, 8 new wells had at least 30 days of production by the end of the second quarter of 2014, with an average 30-day rate of 1,093 Boepd (81% oil) and an average 24-hour peak rate of 1,301 Boepd from an average lateral length of 5,401 feet.  Derivative Update  The Company maintains an active crude oil and natural gas hedging program and has continued to add to its derivative positions. Please see the “Derivatives Information” table at the end of this press release for more detailed information about the Company’s current derivative positions.  Guidance Update  For the third quarter of 2014, the Company expects production to average between 113 - 116 MBoepd.  Following the close of Concho’s equity offering in May 2014 and subsequent repayment of borrowings under the credit facility, the Company’s full-year 2014 cash interest expense guidance range has been reduced to $210 - $215 million and the Company’s non-cash interest expense guidance has been reduced to $10 million.  In the second quarter of 2014, the average discount on the Midland-to-Cushing West Texas Intermediate (“WTI”) oil basis differential was approximately $8.37 per Bbl. The average discount for the months of July and August was $6.60 and $10.58 per Bbl, respectively. The Company’s unhedged crude oil realization during the third quarter of 2014 is expected to be 88% - 90% of NYMEX crude oil. As a result of the widening of the Midland-to-Cushing WTI oil differential in the second and third quarters of 2014, the Company’s full-year 2014 unhedged crude oil realization guidance range has been reduced to 90% - 92% of NYMEX crude oil.  Conference Call and Presentation Information  The Company will host a conference call on Thursday, August 7, 2014, at 8:30 a.m. CDT to further discuss information regarding second quarter 2014 financial and operating results. Interested parties may listen to the conference call via the Company’s website at www.concho.com or by dialing (866) 318-8619 (passcode: 39034276). The earnings presentation is also available on the Company’s website. To access the presentation, visit www.concho.com and select “Investor Relations,” then “Presentations.”  A replay of the conference call will be available on the Company’s website or by dialing (888) 286-8010 (passcode: 39351777).  About Concho Resources Inc.  Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development and exploration 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 Concho’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, 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 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 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 factors discussed or referenced in the “Risk Factors” section of the Company's most recent Form 10-K and Form 10-Q filings and risks relating to declines in the 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, including risks related to properties where we do not serve as the operator and risks related to hydraulic fracturing activities; the adequacy of the Company’s capital resources and liquidity including, but not limited to, access to additional borrowing capacity under our credit facility; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing; 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; shortages of oilfield equipment, services and qualified personnel and increases in costs for such equipment, services and personnel; potential financial losses or earnings reductions from the Company’s commodity price management program; risks related to the integration of acquired assets; uncertainties about the Company’s ability to successfully execute our 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; 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.  We may use the terms “unproved reserves,” “resource potential,” “EUR” per well and “upside potential” to describe estimates of potentially recoverable hydrocarbons that the U.S. Securities and Exchange Commission (“SEC”) rules prohibit from being included in filings with the SEC. These are based on analogy to the Company’s existing models applied to additional acres, additional zones and tighter spacing and are the Company’s internal estimates of hydrocarbon quantities that may be potentially discovered through exploratory drilling or recovered with additional drilling or recovery techniques. These quantities may not constitute “reserves” within the meaning of the Society of Petroleum Engineer’s Petroleum Resource Management System or SEC rules. EUR estimates, resource potential and drilling locations have not been fully risked by Company management and are inherently more speculative than proved reserves estimates. Actual locations drilled and quantities that may be ultimately recovered from the Company’s interests could differ substantially. There is no commitment by the Company to drill all of the drilling locations which have been attributed to these quantities. Factors affecting ultimate recovery include the scope of our ongoing drilling program, which will be directly affected by the availability of capital, drilling and production costs, availability of drilling services and equipment, drilling results, lease expirations, transportation constraints, regulatory approvals and other factors; and actual drilling results, including geological and mechanical factors affecting recovery rates. Estimates of unproved reserves, resource potential, per well EUR and upside potential may change significantly as development of the Company’s oil and natural gas assets provide additional data. Our production forecasts and expectations for future periods are dependent upon many assumptions, including estimates of production decline rates from existing wells and the undertaking and outcome of future drilling activity, which may be affected by significant commodity price declines or drilling cost increases.  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                                                                                                           June 30,           December 31, (in thousands, except share and per         2014           2013        share amounts) Assets Current assets: Cash and cash equivalents                    $ 365,488          $ 21 Accounts receivable, net of allowance for doubtful accounts: Oil and natural gas                            273,789            223,790 Joint operations and other                     315,766            247,945 Derivative instruments                         -                  590 Deferred income taxes                          76,089             30,069 Prepaid costs and other                       22,782           18,460      Total current assets                          1,053,914        520,875     Property and equipment: Oil and natural gas properties,                12,280,195         11,215,373 successful efforts method Accumulated depletion and depreciation        (2,833,157 )      (2,384,108 ) Total oil and natural gas properties,          9,447,038          8,831,265 net Other property and equipment, net             116,974          114,783     Total property and equipment, net             9,564,012        8,946,048   Deferred loan costs, net                       73,303             73,048 Intangible asset - operating rights, net       27,884             28,615 Inventory                                      14,096             19,682 Noncurrent derivative instruments              -                  966 Other assets                                  22,454           1,930       Total assets                                 $ 10,755,663      $ 9,591,164   Liabilities and Stockholders’ Equity Current liabilities: Accounts payable - trade                     $ 50,685           $ 13,936 Bank overdrafts                                -                  36,718 Revenue payable                                195,288            177,617 Accrued and prepaid drilling costs             410,726            318,296 Derivative instruments                         162,479            53,701 Other current liabilities                     164,119          156,600     Total current liabilities                     983,297          756,868     Long-term debt                                 3,379,138          3,630,421 Deferred income taxes                          1,415,624          1,334,653 Noncurrent derivative instruments              63,185             14,088 Asset retirement obligations and other         99,085             97,185 long-term liabilities Stockholders’ equity: Common stock, $0.001 par value; 300,000,000 authorized; 113,139,212 and 105,222,765 shares issued at June 30,          113                105 2014 and December 31, 2013, respectively Additional paid-in capital                     2,986,105          2,027,162 Retained earnings                              1,844,642          1,741,566 Treasury stock, at cost; 167,108 and 127,305 shares at June 30, 2014 and December 31, 2013, respectively                            (15,526    )      (10,884    ) Total stockholders’ equity                    4,815,334        3,757,949   Total liabilities and stockholders’          $ 10,755,663      $ 9,591,164   equity                                                                        Concho Resources Inc. Consolidated Statements of Operations Unaudited                                                                                  Three Months Ended              Six Months Ended                    June 30,                        June 30, (in thousands, except per        2014        2013        2014          2013       share amounts)                                                                       Operating revenues: Oil sales          $ 580,772       $ 466,611       $ 1,120,629       $ 859,819 Natural gas         123,930       96,175        245,032         175,094    sales Total operating           704,702       562,786       1,365,661       1,034,913  revenues Operating costs and expenses: Oil and natural gas          134,944         107,219         261,868           208,064 production Exploration and                  28,288          8,398           53,663            26,805 abandonments Depreciation, depletion and        237,445         188,730         458,837           357,150 amortization Accretion of discount on asset                1,722           1,442           3,393             2,836 retirement obligations Impairments of long-lived           -               65,375          -                 65,375 assets General and administrative (including non-cash stock-based compensation of $9,775 and $8,588 for the three months ended June 30, 2014 and 2013, respectively, and $21,207 and $15,355 for the six months ended June 30, 2014 and 2013,            49,535          40,991          97,285            84,284 respectively) (Gain) loss on derivatives         164,707       (70,324 )      200,322         (11,307   ) not designated as hedges Total operating           616,641       341,831       1,075,368       733,207    costs and expenses Income from         88,061        220,955       290,293         301,706    operations Other income (expense): Interest             (55,388 )       (54,079 )       (111,523  )       (106,185  ) expense Loss on extinguishment       (4,316  )       (28,616 )       (4,316    )       (28,616   ) of debt Other, net          (9,529  )      244           (8,988    )      135        Total other         (69,233 )      (82,451 )      (124,827  )      (134,666  ) expense Income from continuing operations           18,828          138,504         165,466           167,040 before income taxes Income tax          (7,059  )      (53,351 )      (62,390   )      (64,328   ) expense Income from continuing           11,769          85,153          103,076           102,712 operations Income (loss) from discontinued        -             (453    )      -               12,081     operations, net of tax Net income         $ 11,769       $ 84,700       $ 103,076        $ 114,793    Basic earnings per share: Income from continuing         $ 0.11          $ 0.81          $ 0.96            $ 0.98 operations Income (loss) from discontinued        -             -             -               0.12       operations, net of tax Net income         $ 0.11         $ 0.81         $ 0.96           $ 1.10       Diluted earnings per share: Income from continuing         $ 0.11          $ 0.81          $ 0.96            $ 0.98 operations Income (loss) from discontinued        -             -             -               0.11       operations, net of tax Net income         $ 0.11         $ 0.81         $ 0.96           $ 1.09                                                                        Concho Resources Inc. Consolidated Statements of Cash Flows Unaudited                                                                                                          Six Months Ended                                              June 30, (in thousands)                              2014           2013        CASH FLOWS FROM OPERATING ACTIVITIES: Net income                                   $ 103,076          $ 114,793 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization       458,837            357,150 Accretion of discount on asset                 3,393              2,836 retirement obligations Impairments of long-lived assets               -                  65,375 Exploration and abandonments, including        41,762             5,412 dry holes Non-cash stock-based compensation              21,207             15,355 expense Deferred income taxes                          34,951             50,346 (Gain) loss on disposition of assets,          9,457              (132       ) net (Gain) loss on derivatives not                 200,322            (11,307    ) designated as hedges Discontinued operations                        -                  (12,250    ) Other non-cash items                           9,418              14,330 Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable                            (83,061    )       (55,577    ) Prepaid costs and other                        (6,154     )       (661       ) Inventory                                      4,782              (647       ) Accounts payable                               36,626             (11,972    ) Revenue payable                                17,671             12,962 Other current liabilities                     2,441            (58,884    ) Net cash provided by operating                854,728          487,129     activities CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures on oil and natural        (1,054,000 )       (880,653   ) gas properties Additions to property, equipment and           (20,456    )       (9,900     ) other assets Proceeds from the disposition of assets        394                15,434 Contribution to equity method investment       (10,050    )       - Settlements received from (paid on)           (40,891    )      7,591       derivatives not designated as hedges Net cash used in investing activities         (1,125,003 )      (867,528   ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt                 1,578,000          2,548,475 Payments of debt                               (1,828,000 )       (2,194,500 ) Exercise of stock options                      1,289              2,068 Excess tax benefit from stock-based            4,000              4,163 compensation Net proceeds from issuance of common           932,455            - stock Payments for loan costs                        (10,642    )       (14,075    ) Purchase of treasury stock                     (4,642     )       (3,309     ) Bank overdrafts                               (36,718    )      34,744      Net cash provided by financing                635,742          377,566     activities Net increase (decrease) in cash and cash       365,467            (2,833     ) equivalents Cash and cash equivalents at beginning        21               2,880       of period Cash and cash equivalents at end of          $ 365,488         $ 47          period                                                                        Concho Resources Inc. Summary Production and Price Data Unaudited  The following table sets forth summary information concerning our production and operating data for the periods indicated:                         Three Months Ended          Six Months Ended                            June 30,                      June 30,                      2014          2013        2014          2013                                                                      Production and operating data:   Net production   volumes:         Oil (MBbl)           6,229           5,192         12,075          9,959         Natural gas          21,485          18,615        41,285          36,413         (MMcf)         Total (MBoe)         9,810           8,295         18,956          16,028                                                                             Average daily   production volumes:         Oil (Bbl)            68,451          57,055        66,713          55,022         Natural gas          236,099         204,560       228,094         201,177         (Mcf)         Total (Boe)          107,801         91,148        104,729         88,552                                                                             Average prices:         Oil, without         derivatives        $ 93.24         $ 89.87       $ 92.81         $ 86.34         (Bbl)         Oil, with         derivatives        $ 89.29         $ 90.13       $ 89.96         $ 87.07         (Bbl) (a)         Natural gas,         without            $ 5.77          $ 5.17        $ 5.94          $ 4.81         derivatives         (Mcf)         Natural gas,         with               $ 5.70          $ 5.18        $ 5.78          $ 4.82         derivatives         (Mcf) (a)         Total, without         derivatives        $ 71.84         $ 67.85       $ 72.04         $ 64.57         (Boe)         Total, with         derivatives        $ 69.18         $ 68.04       $ 69.89         $ 65.04         (Boe) (a)                                                                             Operating costs and   expenses per Boe:         Lease         operating          $ 8.15          $ 7.25        $ 8.11          $ 7.48         expenses and         workover costs         Oil and         natural gas        $ 5.61          $ 5.68        $ 5.70          $ 5.50         taxes         Depreciation,         depletion and      $ 24.20         $ 22.75       $ 24.21         $ 22.29         amortization         General and        $ 5.05          $ 4.94        $ 5.13          $ 5.26         administrative                                                              (a)   Includes the effect of cash settlements received from (paid on) commodity         derivatives not designated as hedges:                                                                                          Three Months Ended            Six Months Ended                            June 30,                      June 30,         (in thousands)   2014          2013        2014          2013                                                                                   Cash receipts         from (payments         on)         derivatives         not designated         as hedges:         Oil                $ (24,569 )     $ 1,320       $ (34,338 )     $ 7,336         derivatives         Natural gas         (1,485  )      255          (6,553  )      255         derivatives         Total              $ (26,054 )     $ 1,575       $ (40,891 )     $ 7,591                                                                       The presentation of average prices with derivatives is a non-GAAP measure         as a result of including the cash receipts from (payments on) commodity         derivatives that are presented in loss on derivatives not designated as         hedges in the statements of operations. This presentation of average         prices with derivatives is a means by which to reflect the actual cash         performance of our 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.                    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 and cash flows from operating activities to exclude certain non-cash and unusual items.  Adjusted Net Income  The following table provides a reconciliation of net income (GAAP) to adjusted net income (non-GAAP) for the periods indicated:                         Three Months Ended            Six Months Ended                          June 30,                        June 30, (in thousands, except per share        2014        2013        2014        2013     amounts)                                                                      Net income - as          $ 11,769        $ 84,700        $ 103,076       $ 114,793 reported                                                                           Adjustments for certain non-cash and unusual items:       (Gain) loss on       derivatives          164,707         (70,324 )       200,322         (11,307 )       not designated       as hedges       Cash receipts       from (payments       on)                  (26,054 )       1,575           (40,891 )       7,591       derivatives       not designated       as hedges       Impairments of       long-lived           -               65,375          -               65,375       assets       Leasehold            11,193          2,940           15,138          7,327       abandonments       Loss on       extinguishment       4,316           28,616          4,316           28,616       of debt       Loss on       disposition of       9,603           -               9,457           -       assets, net       Discontinued       operations:       (Gain) loss on       disposition of       -               764             -               (19,599 )       assets       Tax impact (a)      (61,739 )      (11,144 )      (71,005 )      (30,031 ) Adjusted net income      $ 113,795      $ 102,502      $ 220,413      $ 162,765                                                                            Adjusted earnings per share:       Basic              $ 1.04          $ 0.98          $ 2.06          $ 1.55       Diluted            $ 1.04          $ 0.98          $ 2.05          $ 1.55                                                                                                                                                     Effective tax rates        37.7    %       38.5    %       37.7    %       38.5    %                                                                                                                                       (a)   The tax impact is computed utilizing the Company's adjusted statutory       effective federal and state income tax rates shown in the table above.              Adjusted Cash Flows  The following table provides a reconciliation of cash flows from operating activities (GAAP) to adjusted cash flows (non-GAAP) for the periods indicated:                                                                                                                     Six Months Ended                                                      June 30, (in thousands)                                     2014          2013                                                                    Cash flows from operating activities                 $ 854,728       $ 487,129 Settlements received from (paid on) derivatives       (40,891 )      7,591 not designated as hedges (a) Adjusted cash flows                                  $ 813,837      $ 494,720                                                                                                                                       (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 generally accepted accounting principles ("GAAP") measure of net income 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, 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) loss on derivatives not designated as hedges, (7) cash receipts from (payments on) derivatives not designated as hedges, (8) (gain) loss on disposition of assets, net, (9) interest expense, (10) loss on extinguishment of debt, (11) federal and state income taxes on continuing operations and (12) similar items listed above that are presented in discontinued operations. EBITDAX is not a measure of net income or cash flows as determined by GAAP.  The Company’s EBITDAX measure (which includes continuing and discontinued operations) 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, 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 net income to EBITDAX for the periods indicated:                    Three Months Ended            Six Months Ended                    June 30,                        June 30, (in thousands)    2014        2013        2014        2013                                                                    Net income         $ 11,769        $ 84,700        $ 103,076       $ 114,793 Exploration and                  28,288          8,398           53,663          26,805 abandonments Depreciation, depletion and        237,445         188,730         458,837         357,150 amortization Accretion of discount on asset                1,722           1,442           3,393           2,836 retirement obligations Impairments of long-lived           -               65,375          -               65,375 assets Non-cash stock-based          9,775           8,588           21,207          15,355 compensation (Gain) loss on derivatives          164,707         (70,324 )       200,322         (11,307 ) not designated as hedges Cash receipts from (payments on)                  (26,054 )       1,575           (40,891 )       7,591 derivatives not designated as hedges (Gain) loss on disposition of       9,603           (137    )       9,457           (132    ) assets, net Interest             55,388          54,079          111,523         106,185 expense Loss on extinguishment       4,316           28,616          4,316           28,616 of debt Income tax expense from         7,059           53,351          62,390          64,328 continuing operations Discontinued        -             453           -             (12,081 ) operations EBITDAX            $ 504,018      $ 424,846      $ 987,293      $ 765,514      Concho Resources Inc. Costs Incurred Unaudited  The table below provides the costs incurred for the periods indicated:    Costs incurred for oil and natural gas producing activities (a)                        Three Months Ended        Six Months Ended                          June 30,                    June 30, (in thousands)         2014        2013        2014          2013                                                                  Property acquisition costs:       Proved             $ 2,137       $ 652         $ 22,627        $ 2,537       Unproved             11,382        16,945        36,070          44,841 Exploration                342,424       283,254       666,921         549,944 Development               193,163      220,588      404,842        395,310       Total costs       incurred for       oil and            $ 549,106     $ 521,439     $ 1,130,460     $ 992,632       natural gas       properties                                                                                                                               (a)   The costs incurred for oil and natural gas producing activities includes       the following amounts of asset retirement obligations:                                                                                                                                                          Three Months Ended          Six Months Ended                          June 30,                    June 30,       (in              2014        2013        2014          2013       thousands)                                                                             Exploration        $ 562         $ 820         $ 1,120         $ 1,554       costs       Development         339          5,832        1,304          7,362       costs       Total asset       retirement         $ 901         $ 6,652       $ 2,424         $ 8,916       obligations                                                                                                                                                                                                                                                                   Concho Resources Inc. Derivatives Information Unaudited                                                                                                            The table below provides data associated with the Company’s derivatives at August 6, 2014:                                                                                                               2014                 Third Quarter     Fourth            Total              2015               2016            2017                                   Quarter                                                                                                            Oil Swaps: (a)     Volume        5,221,000         4,633,000         9,854,000          15,262,000         7,329,000       168,000     (Bbl)     Price       $ 92.96           $ 92.49           $ 92.74            $ 87.73            $ 90.62         $ 87.00     (Bbl)                                                                                                            Oil Basis Swaps: (b)     Volume        3,956,000         3,956,000         7,912,000          7,122,000          -               -     (Bbl)     Price       $ (0.99     )     $ (1.07     )     $ (1.03      )     $ (3.41      )     $ -             $ -     (Bbl)                                                                                                            Natural Gas Swaps: (c)     Volume        2,576,000         2,053,000         4,629,000          23,725,000         -               -     (MMBtu)     Price       $ 4.23            $ 4.24            $ 4.23             $ 4.16             $ -             $ -     (MMBtu)                                                                                                            Natural Gas Collars: (d)     Volume        5,520,000         5,520,000         11,040,000         -                  -               -     (MMBtu)     Ceiling     Price       $ 4.40            $ 4.40            $ 4.40             $ -                $ -             $ -     (MMBtu)     Floor     Price       $ 3.85            $ 3.85            $ 3.85             $ -                $ -             $ -     (MMBtu)                                                                                                            Natural Gas Basis Swaps: (e)     Volume        7,360,000         7,360,000         14,720,000         -                  -               -     (MMBtu)     Price       $ (0.09     )     $ (0.09     )     $ (0.09      )     $ -                $ -             $ -     (MMBtu)                                                                                                                                                                                                    (a) The index prices for the oil contracts are based on the 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. (d) The index prices for the natural gas collars are based on the El Paso Permian delivery point. (e) The basis differential price is between the El Paso Permian delivery point and NYMEX – Henry Hub delivery     point.      Contact:  Concho Resources Inc. Price Moncrief, 432-683-7443 Vice President of Capital Markets and Strategy or Megan P. Hays, 432-685-2533 Director of Investor Relations  
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