Concho Resources Inc. (CXO, Financial) last month reported financial and operating results for the second quarter and first half of 2014.
Highlights for the second quarter of 2014:
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
· 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 (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 (non-GAAP) of $504.0 million for the second quarter of 2014, a 19% increase over the second quarter of 2013
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.
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.
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.
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 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.
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.
