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Concho Resources Inc. Reports Fourth Quarter and Full Year 2011 Financial and Operating Results

MIDLAND, Texas--(BUSINESS WIRE)--Feb. 22, 2012-- Concho Resources Inc. (NYSE: CXO) (“Concho” or the “Company”) today reported financial and operating results for the three months and year ended December 31, 2011. Highlights for the year ended December 31, 2011 include:

  • Production of 23.6 million barrels of oil equivalent (“MMBoe”), an increase of 51% over 2010
  • Net income of $548.1 million, or $5.28 per diluted share, as compared to net income of $204.4 million, or $2.18 per diluted share, in 2010
  • Adjusted net income (non-GAAP)1 of $430.1 million, or $4.15 per diluted share, as compared to $254.1 million, or $2.71 per diluted share, in 2010
  • EBITDAX (non-GAAP)2 of $1,275.2 million for 2011, a 72% increase over 2010

1 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.

2 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.

Year End 2011 Financial Results

Production for 2011 totaled 23.6 MMBoe (14.7 million barrels of oil (“MMBbls”) and 53.7 billion cubic feet of natural gas (“Bcf”)), an increase of 51% as compared to 15.6 MMBoe (10.3 MMBbls of oil and 31.4 Bcf of natural gas) produced in 2010. Production from continuing operations in 2011 increased 27% over 2010 production (after giving pro forma effect for all of 2010 to the properties acquired from Marbob Energy Corporation (“Marbob”) and the acquisition of certain properties in connection with the Marbob preferential purchase right dispute in 2010). The Company’s 2010 and 2011 production includes production from its non-core Permian Basin asset divestiture in the fourth quarter of 2010 and its Bakken asset divestiture in the first quarter of 2011 that are now being reflected in discontinued operations in the Company’s historical results. For more information, please see the “Summary Production and Operating Data” tables at the end of this press release.

Timothy A. Leach, Concho's Chairman, CEO and President commented, “In 2011, Concho achieved record levels of production, cash flow and earnings. In addition to these achievements, we increased our net acreage position by over 40% in 2011 through bolt-on acquisitions and additional leasing efforts, furthering our resource exposure to the multiple pay intervals present in the Permian Basin. Today, we are well positioned to continue to execute our business strategy and to capitalize on the emerging opportunities in the Permian.”

For 2011, the Company reported net income of $548.1 million, or $5.28 per diluted share, as compared to net income for 2010 of $204.4 million, or $2.18 per diluted share. The Company’s 2011 results were impacted by several non-cash items, including a $61.5 million unrealized mark-to-market gain on commodity and interest rate derivatives, $5.7 million of leasehold abandonments, $0.4 million in impairments of long-lived assets and a $135.9 million gain related to the sale of the Bakken assets included in discontinued operations. Excluding these items and their tax effects, the 2011 adjusted net income (non-GAAP) was $430.1 million, or $4.15 per diluted share. Excluding similar non-cash items, and their tax impact plus a change in state statutory effective income tax rate for 2010, adjusted net income (non-GAAP) would have been $254.1 million, or $2.71 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 (defined as net income (loss), 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) bad debt expense, (7) unrealized (gain) loss on derivatives not designated as hedges, (8) (gain) loss on sale of assets, net, (9) interest expense, (10) federal and state income taxes on continuing operations, and (11) similar items listed above that are presented in discontinued operations) increased to $1,275.2 million in 2011, as compared to $743.0 million in 2010. For a reconciliation of net income (GAAP) to EBITDAX (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below.

Oil and natural gas sales from continuing operations for 2011 increased 85% when compared to 2010. This increase is attributable to the 61% increase in production, the 19% increase in the Company’s unhedged realized oil price and the 11% increase in the Company’s unhedged realized natural gas price in 2011 compared to 2010.

Oil and natural gas production expense from continuing operations for 2011, including taxes, totaled $308.0 million, or $13.10 per barrel of oil equivalent (“Boe”), a 15% increase per Boe from 2010. This increase was due primarily to higher lease operating expenses and workover costs, which averaged $7.08 per Boe in 2011 as compared to $5.94 per Boe in 2010, and higher oil and natural gas taxes, which averaged $6.02 per Boe in 2011 as compared to $5.48 per Boe in 2010. The per Boe increase in lease operating expenses is primarily due to an increase in the cost of services, primarily labor related and higher costs related to routine environmental related costs.

Depreciation, depletion and amortization expense (“DD&A”) from continuing operations for 2011 totaled $428.4 million, or $18.21 per Boe, a 10% increase per Boe from 2010. The increase in depletion expense was primarily due to capitalized costs associated with new wells that were successfully drilled and completed in 2011 and the Marbob acquisition and the acquisition of certain properties in connection with the Marbob preferential purchase right dispute in 2010.

General and administrative expense (“G&A”) from continuing operations for 2011 totaled $96.3 million, or $4.09 per Boe, as compared to $64.3 million, or $4.41 per Boe in 2010. Recurring cash G&A for 2011 totaled $77.0 million and stock-based compensation (non-cash) totaled $19.3 million. The decrease in per Boe expense for 2011 over 2010 was primarily due to increased production, offset in part by a 50% increase in absolute G&A costs due in part to increased staffing across the Company and a full year effect from additional employees from the Marbob acquisition.

The Company’s 2011 cash flow from operating activities (GAAP) was $1,199.5 million, as compared to $651.6 million, an increase of 84%. Adjusted cash flows (non-GAAP), which are cash flows from operating activities (GAAP) adjusted for settlements paid on derivatives not designated as hedges, was $1,114.6 million for 2011, as compared to $637.8 million for 2010, an increase of 75%. 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.

In 2011, the Company made net cash payments on derivatives not designated as hedges of $84.9 million and the non-cash unrealized mark-to-market gain on derivatives not designated as hedges was $61.5 million. This is compared to net cash payments of $13.8 million on derivatives not designated as hedges and a $73.5 million non-cash unrealized mark-to-market loss on derivatives not designated as hedges in 2010. To better understand the impact of the Company’s derivative positions and their impact on the statements of operations, please see the “Summary Production and Operating Data” and “Derivatives Information” tables at the end of this press release.

Operations

During 2011, the Company commenced the drilling of or participated in a total of 810 gross wells (708 operated), 681 of which had been completed as producers, all of which were successful, and 124 of which were in progress at December 31, 2011. In addition, during 2011, the Company completed 153 wells that were drilled prior to 2011. Currently, the Company is operating 31 drilling rigs in the Permian Basin; 9 of these rigs are drilling Yeso wells in the New Mexico Shelf, 14 are drilling Wolfberry wells in the Texas Permian, 7 are drilling in the Delaware Basin targeting the Bone Spring play, which includes the Avalon shale, the Bone Spring sands and the Wolfcamp shale, and 1 rig is drilling Lower Abo wells in the New Mexico Shelf.

New Mexico Shelf

During the fourth quarter of 2011, the Company drilled 92 wells (86 operated) on its New Mexico Shelf assets, which included both Yeso and Lower Abo wells, with a 100% success rate on the 44 wells that had been completed by December 31, 2011. In addition, during the fourth quarter of 2011, the Company completed 66 wells that were drilled prior to the fourth quarter of 2011. During 2011, the Company drilled 443 wells (385 operated) on the New Mexico Shelf.

Texas Permian

During the fourth quarter of 2011, the Company drilled 64 wells (61 operated) on its Texas Permian assets with a 100% success rate on the 18 wells that had been completed by December 31, 2011. In addition, during the fourth quarter of 2011, the Company completed 66 wells that were drilled prior to the fourth quarter of 2011. During 2011, the Company drilled 272 wells (266 operated) in the Texas Permian.

Delaware Basin

During the fourth quarter of 2011, the Company drilled 15 wells (12 operated) on its Delaware Basin assets with a 100% success rate on the 3 wells that had been completed by December 31, 2011. In addition, during the fourth quarter of 2011, the Company completed 22 wells that were drilled prior to the fourth quarter of 2011. During 2011, the Company drilled 87 wells (57 operated) in the Delaware Basin. The Company’s net production in the fourth quarter of 2011 from the Bone Spring play averaged approximately 11,400 Boepd, an increase of 28% over the third quarter of 2011 and a 250% increase over the fourth quarter of 2010.

Liquidity

At December 31, 2011, the Company’s total debt balance was approximately $2.1 billion, of which $583.5 million was indebtedness outstanding under the Company’s credit facility. The Company’s total commitments under its credit facility are $2.0 billion, leaving approximately $1.4 billion available to be borrowed at December 31, 2011.

2012 Guidance Update

The Company’s 2012 production guidance range is 27.5 to 28.5 MMBoe. In the Company’s current forecast, oil comprises 60% - 63% of its total production, in line with 2011 levels, and during 2011, over 90% of the Company’s total revenue was derived from the sale of oil and natural gas liquids. The Company currently estimates that its 2012 direct lease operating expense will average $6.80 - $7.20 per Boe as compared to its previous guidance for the year of $6.40 - $6.80 per Boe. Additionally, the Company estimates that its 2012 DD&A expense will average $18.00 - $20.00 per Boe as compared to its previous guidance for the year of $18.00 - $19.00 per Boe.

Derivative Update

The Company maintains an active hedging program and continues 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.

Conference Call Information

The Company will host a conference call on Thursday, February 23, 2012 at 9:00 a.m. Central Time to discuss the fourth quarter and full year 2011 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) 713-8563 (passcode: 12630565). A replay of the conference call will be available on the Company’s website or by dialing (888) 286-8010 (passcode: 80842393).

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 facts, 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. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Company's future financial position, liquidity and capital resources, operations, performance, production growth, acquisitions, returns, capital expenditure budgets, oil and natural gas reserves, number of identified drilling locations, drilling program, derivative activities, costs and other guidance included in this press release. 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 10-Q filings and risks relating to declines in the prices we receive for our oil and natural gas; uncertainties about the estimated quantities of reserves; risks related to the integration of acquired assets; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing; drilling and operating risks; the adequacy of our capital resources and liquidity; risks related to the concentration of our operations in the Permian Basin; the results of our hedging program; weather; litigation; shortages of oilfield equipment, services and qualified personnel and increases in costs for such equipment, services and personnel; uncertainties about our ability to replace reserves and economically develop our current reserves; competition in the oil and natural gas industry; our existing indebtedness; and other important factors that could cause actual results to differ materially from those projected.

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

 

       
   
December 31,
(in thousands, except share and per share data)   2011   2010
Assets
Current assets:
Cash and cash equivalents $ 342 $ 384
Accounts receivable, net of allowance for doubtful accounts:
Oil and natural gas 213,921 136,471
Joint operations and other 153,746 131,966
Related parties - 115
Derivative instruments 1,698 6,855
Deferred income taxes 28,793 42,716
Prepaid costs and other   12,523     12,126  
Total current assets   411,023     330,633  
Property and equipment:
Oil and natural gas properties, successful efforts method 7,347,460 5,616,249
Accumulated depletion and depreciation   (1,116,545 )   (730,509 )
Total oil and natural gas properties, net 6,230,915 4,885,740
Other property and equipment, net   59,203     28,047  
Total property and equipment, net   6,290,118     4,913,787  
Funds held in escrow 17,394 -
Deferred loan costs, net 65,641 52,828
Intangible asset - operating rights, net 33,425 34,973
Inventory 19,419 28,342
Noncurrent derivative instruments 7,944 2,233
Other assets   4,612     5,698  
Total assets $ 6,849,576   $ 5,368,494  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable:
Trade $ 23,198 $ 39,951
Related parties 154 1,189
Bank overdrafts 39,241 12,314
Revenue payable 146,061 57,406
Accrued and prepaid drilling costs 293,919 215,079
Derivative instruments 56,218 97,775
Other current liabilities   142,686     83,275  
Total current liabilities   701,477     506,989  
Long-term debt 2,080,141 1,668,521
Deferred income taxes 1,002,295 720,889
Noncurrent derivative instruments 32,254 51,647
Asset retirement obligations and other long-term liabilities 52,670 36,574
Stockholders’ equity:
Common stock, $0.001 par value; 300,000,000 authorized; 103,756,222 and 102,842,082
shares issued at December 31, 2011 and 2010, respectively 104 103
Additional paid-in capital 1,925,757 1,874,649
Retained earnings 1,058,874 510,737
Treasury stock, at cost; 55,990 and 31,963 shares at December 31, 2011 and 2010, respectively   (3,996 )   (1,615 )
Total stockholders’ equity   2,980,739     2,383,874  
Total liabilities and stockholders’ equity $ 6,849,576   $ 5,368,494  
                 
 
 

Concho Resources Inc.
Consolidated Statements of Operations
Unaudited
                 
       
Three Months Ended Years Ended
December 31, December 31,
(in thousands, except per share data)   2011   2010   2011   2010
 
Operating revenues:
Oil sales $ 372,768 $ 245,652 $ 1,330,601 $ 735,333
Natural gas sales   105,659     70,336     409,366     204,934  
Total operating revenues   478,427     315,988     1,739,967     940,267  
Operating costs and expenses:
Oil and natural gas production 90,726 54,875 308,011 166,409
Exploration and abandonments 7,155 4,676 11,779 10,324
Depreciation, depletion and amortization 123,478 84,248 428,377 241,642
Accretion of discount on asset retirement obligations 795 476 2,965 1,482
Impairments of long-lived assets 363 5,947 439 11,614
General and administrative (including non-cash stock-based
compensation of $5,405 and $4,077 for the three months ended
December 31, 2011 and 2010, respectively, and $19,271 and $12,931
for the years ended December 31, 2011 and 2010, respectively) 29,378 17,451 96,261 64,275
Bad debt expense - 292 - 870
Loss on derivatives not designated as hedges   320,312     149,554     23,350     87,325  
Total operating costs and expenses   572,207     317,519     871,182     583,941  
Income (loss) from operations   (93,780 )   (1,531 )   868,785     356,326  
Other income (expense):
Interest expense (34,159 ) (25,794 ) (118,360 ) (60,087 )
Other, net   616     (6,415 )   (3,974 )   (10,313 )
Total other expense   (33,543 )   (32,209 )   (122,334 )   (70,400 )
Income (loss) from continuing operations before income taxes (127,323 ) (33,740 ) 746,451 285,926
Income tax benefit (expense)   48,152     3,097     (285,848 )   (115,278 )
Income (loss) from continuing operations (79,171 ) (30,643 ) 460,603 170,648
Income (loss) from discontinued operations, net of tax   (3,654 )   22,527     87,534     33,722  
Net income (loss) $ (82,825 ) $ (8,116 ) $ 548,137   $ 204,370  
Basic earnings per share:
Income (loss) from continuing operations $ (0.77 ) $ (0.31 ) $ 4.49 $ 1.84
Income (loss) from discontinued operations, net of tax   (0.04 )   0.23     0.85     0.37  
Net income (loss) $ (0.81 ) $ (0.08 ) $ 5.34   $ 2.21  
Weighted average shares used in basic earnings per share   102,771     99,014     102,581     92,542  
Diluted earnings per share:
Income (loss) from continuing operations $ (0.77 ) $ (0.31 ) $ 4.44 $ 1.82
Income (loss) from discontinued operations, net of tax   (0.04 )   0.23     0.84     0.36  
Net income (loss) $ (0.81 ) $ (0.08 ) $ 5.28   $ 2.18  
Weighted average shares used in diluted earnings per share   102,771     99,014     103,653     93,837  
                                 
 
 

Concho Resources Inc.
Consolidated Statements of Cash Flows
Unaudited
         
   
Years Ended
December 31,
(in thousands)   2011   2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 548,137 $ 204,370
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 428,377 241,642
Accretion of discount on asset retirement obligations 2,965 1,482
Impairments of long-lived assets 439 11,614
Exploration and abandonments, including dry holes 6,802 7,612
Non-cash compensation expense 19,271 12,931
Bad debt expense - 870
Deferred income taxes 261,686 100,337
Loss on sale of assets, net 1,139 58
Loss on derivatives not designated as hedges 23,350 87,325
Discontinued operations (76,148 ) 5,665
Other non-cash items 3,075 6,837
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (117,561 ) (92,957 )
Prepaid costs and other (1,730 ) 3,255
Inventory 7,749 (2,321 )
Accounts payable (25,381 ) 24,373
Revenue payable 84,850 26,337
Other current liabilities   32,438     12,152  
Net cash provided by operating activities   1,199,458     651,582  
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures on oil and natural gas properties (1,707,939 ) (2,127,047 )
Additions to other property and equipment (37,651 ) (6,935 )
Proceeds from the sale of assets 196,420 104,349
Funds held in escrow (17,394 ) -
Settlements paid on derivatives not designated as hedges   (84,854 )   (13,824 )
Net cash used in investing activities   (1,651,418 )   (2,043,457 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 2,809,300 2,946,748
Payments of debt (2,389,300 ) (2,283,248 )
Exercise of stock options 7,801 5,778
Excess tax benefit from stock-based compensation 24,037 11,346
Net proceeds from issuance of common stock - 739,446
Payments for loan origination costs (24,466 ) (38,746 )
Purchase of treasury stock (2,381 ) (1,198 )
Bank overdrafts   26,927     8,899  
Net cash provided by financing activities   451,918     1,389,025  
Net decrease in cash and cash equivalents (42 ) (2,850 )
Cash and cash equivalents at beginning of period   384     3,234  
Cash and cash equivalents at end of period $ 342   $ 384  
SUPPLEMENTAL CASH FLOWS:
Cash paid for interest and fees, net of $73 and $184 capitalized interest $ 77,921 $ 48,052
Cash paid for income taxes $ 22,768 $ 19,885
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for a business combination $ - $ 75,773
Issuance of debt for a business combination $ - $ 159,000
                 
 
 

Concho Resources Inc.

Summary Production and Operating Data
Unaudited
         

The following table sets forth summary information from our continuing and discontinued operations concerning our production and operating data for the periods indicated:

                     
 
Three Months Ended Years Ended
December 31, December 31,
        2011   2010   2011   2010
 
Production and operating data:
Net production volumes:
Oil (MBbl) 4,074 3,167 14,692 10,330
Natural gas (MMcf) 14,748 11,012 53,714 31,405
Total (MBoe) 6,532 5,002 23,644 15,564
 
Average daily production volumes:
Oil (Bbl) 44,283 34,424 40,252 28,301
Natural gas (Mcf) 160,304 119,696 147,162 86,041
Total (Boe) 71,000 54,373 64,779 42,641
 
Average prices:
Oil, without derivatives (Bbl) $ 91.50 $ 81.31 $ 91.21 $ 76.05
Oil, with derivatives (Bbl) (a) $ 87.75 $ 76.78 $ 84.13 $ 73.51
Natural gas, without derivatives (Mcf) $ 7.16 $ 6.58 $ 7.62 $ 6.77
Natural gas, with derivatives (Mcf) (a) $ 7.73 $ 7.22 $ 8.10 $ 7.32
Total, without derivatives (Boe) $ 73.24 $ 65.96 $ 73.99 $ 64.13
Total, with derivatives (Boe) (a) $ 72.17 $ 64.50 $ 70.68 $ 63.56
 
Operating costs and expenses per Boe:
Lease operating expenses and workover costs $ 8.03 $ 6.23 $ 7.07 $ 6.12
Oil and natural gas taxes $ 5.86 $ 5.47 $ 6.03 $ 5.49
General and administrative $ 4.50 $ 3.43 $ 4.07 $ 4.07
Depreciation, depletion and amortization $ 18.90 $ 17.49 $ 18.21 $ 16.53
                     

(a)

Includes the effect of  cash settlements received from (paid on) commodity derivatives not designated as hedges and reported in operating costs and expenses. The following table reflects the amounts of cash settlements received from (paid on) commodity derivatives not designated as hedges that were included in computing average prices with derivatives and reconciles to the amount in loss on derivatives not designated as hedges as reported in the statements of operations:

 
                 
 
Three Months Ended Years Ended
December 31, December 31,
(in thousands)   2011   2010   2011   2010
 
Loss on derivatives not designated as hedges:
Cash payments on oil derivatives $ (15,290 ) $ (14,330 ) $ (103,969 ) $ (26,281 )
Cash receipts from natural gas derivatives 8,271 7,036 25,739 17,414
Cash payments on interest rate derivatives - (1,299 ) (6,624 ) (4,957 )

Unrealized mark-to-market gain (loss) on commodity and interest rate derivatives

  (313,293 )   (140,961 )   61,504     (73,501 )
Loss on derivatives not designated as hedges $ (320,312 ) $ (149,554 ) $ (23,350 ) $ (87,325 )
 

The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash (payments on) receipts from 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.

 
 

The following table sets forth summary information from our continuing operations concerning production and operating data for the periods indicated:

                     
         
Three Months Ended Years Ended
December 31, December 31,
        2011   2010   2011   2010
 
Production and operating data:
Net production volumes:
Oil (MBbl) 4,074 3,008 14,575 9,621
Natural gas (MMcf) 14,748 10,606 53,677 29,687
Total (MBoe) 6,532 4,776 23,521 14,569
 
Average daily production volumes:
Oil (Bbl) 44,283 32,696 39,932 26,359
Natural gas (Mcf) 160,304 115,283 147,060 81,334
Total (Boe) 71,000 51,910 64,442 39,915
 
Average prices:
Oil, without derivatives (Bbl) $ 91.50 $ 81.67 $ 91.29 $ 76.43
Oil, with derivatives (Bbl) (a) $ 87.75 $ 76.90 $ 84.16 $ 73.70
Natural gas, without derivatives (Mcf) $ 7.16 $ 6.63 $ 7.63 $ 6.90
Natural gas, with derivatives (Mcf) (a) $ 7.73 $ 7.30 $ 8.11 $ 7.49
Total, without derivatives (Boe) $ 73.24 $ 66.16 $ 73.98 $ 64.54
Total, with derivatives (Boe) (a) $ 72.17 $ 64.63 $ 70.65 $ 63.93
 
Operating costs and expenses per Boe:
Lease operating expenses and workover costs $ 8.03 $ 6.07 $ 7.08 $ 5.94
Oil and natural gas taxes $ 5.86 $ 5.42 $ 6.02 $ 5.48
General and administrative $ 4.50 $ 3.65 $ 4.09 $ 4.41
Depreciation, depletion and amortization $ 18.90 $ 17.64 $ 18.21 $ 16.59
                     

(a)

Includes the effect of  cash settlements received from (paid on) commodity derivatives not designated as hedges and reported in operating costs and expenses. The following table reflects the amounts of cash settlements received from (paid on) commodity derivatives not designated as hedges that were included in computing average prices with derivatives and reconciles to the amount in loss on derivatives not designated as hedges as reported in the statements of operations:

 
                 
 
Three Months Ended Years Ended
December 31, December 31,
(in thousands)   2011   2010   2011   2010
 
Loss on derivatives not designated as hedges:
Cash payments on oil derivatives $ (15,290 ) $ (14,330 ) $ (103,969 ) $ (26,281 )
Cash receipts from natural gas derivatives 8,271 7,036 25,739 17,414
Cash payments on interest rate derivatives - (1,299 ) (6,624 ) (4,957 )

Unrealized mark-to-market gain (loss) on commodity and interest rated erivatives

  (313,293 )   (140,961 )   61,504     (73,501 )
Loss on derivatives not designated as hedges $ (320,312 ) $ (149,554 ) $ (23,350 ) $ (87,325 )
                     

The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash (payments on) receipts from 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

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.

We define EBITDAX as net income (loss), 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) bad debt expense, (7) unrealized (gain) loss on derivatives not designated as hedges, (8) (gain) loss on sale of assets, net, (9) interest expense, (10) federal and state income taxes on continuing operations, and (11) 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.

Our EBITDAX measure (which includes continuing and discontinued operations) provides additional information which may be used to better understand our operations. EBITDAX is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net income, as an indicator of our 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 us, may not be comparable to similarly titled measures reported by other companies. We believe that EBITDAX is a widely followed measure of operating performance and is one of many metrics used by our management team, and by other users, of our consolidated financial statements. For example, EBITDAX can be used to assess our 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 our assets and our company without regard to capital structure or historical cost basis.

The following table provides a reconciliation of net income (loss) to EBITDAX:

         
  Three Months Ended   Years Ended
December 31, December 31,
(in thousands)   2011   2010   2011   2010
   
Net income (loss) $ (82,825 ) $ (8,116 ) $ 548,137 $ 204,370
Exploration and abandonments 7,155 4,676 11,779 10,324
Depreciation, depletion and amortization 123,478 84,248 428,377 241,642
Accretion of discount on asset retirement obligations 795 476 2,965 1,482
Impairments of long-lived assets 363 5,947 439 11,614
Non-cash stock-based compensation 5,405 4,077 19,271 12,931
Bad debt expense - 292 - 870
Unrealized (gain) loss on derivatives not designated as hedges 313,293 140,961 (61,504 ) 73,501
(Gain) loss on sale of assets, net (1,990 ) 34 1,139 58
Interest expense 34,159 25,794 118,360 60,087
Income tax expense (benefit) on continuing operations (48,152 ) (3,097 ) 285,848 115,278
Discontinued operations   3,654     (11,892 )   (79,652 )   10,837
EBITDAX $ 355,335   $ 243,400   $ 1,275,159   $ 742,994
                               
 
 

Adjusted Net Income

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 earnings and cash flows from operating activities to make other adjustments to exclude certain non-cash items and match realizations to production settlement months. The following table provides a reconciliation of net income (loss) (GAAP) to adjusted net income (non-GAAP).

                   
         
Three Months Ended Years Ended
December 31, December 31,
(in thousands, except per share data)   2011   2010   2011   2010
 
Net income (loss) - as reported $ (82,825 ) $ (8,116 ) $ 548,137 $ 204,370
 
Adjustments for certain non-cash items:
Unrealized mark-to-market (gain) loss on commodity and interest rate derivatives 313,293 140,961 (61,504 ) 73,501
Impairments of long-lived assets 363 5,947 439 11,614
Leasehold abandonments 4,940 3,672 5,735 7,575
Discontinued operations:
Impairments of long-lived assets - - - 3,567
(Gain) loss on sale of assets 6,007 (29,112 ) (135,943 ) (29,112 )
Tax impact (a) (122,700 ) (46,401 ) 73,258 (25,649 )
Change in state statutory effective income tax rate   -     8,278     -     8,278  
Adjusted net income $ 119,078   $ 75,229   $ 430,122   $ 254,144  
 
Adjusted basic earnings per share:
Adjusted net income per share $ 1.16 $ 0.76 $ 4.19 $ 2.75
Weighted average shares used in adjusted basic earnings per share 102,771 99,014 102,581 92,542
 
Adjusted diluted earnings per share:
Adjusted net income per share $ 1.15 $ 0.75 $ 4.15 $ 2.71
Weighted average shares used in adjusted diluted earnings per share 103,770 100,386 103,653 93,837
                 

(a) The tax impact is computed utilizing the Company's statutory effective federal and state income tax rates excluding the effects of permanent rate differences. The income tax rates for the three months ended December 31, 2011 and 2010, were 37.8% and 38.2%, respectively, and 38.3% and 38.2% for the years ended December 31, 2011 and 2010, respectively.

 
 

Adjusted Cash Flows

The following table provides a reconciliation of cash flows from operating activities (GAAP) to adjusted cash flows (non-GAAP).

         
   
Years Ended December 31,
(in thousands)   2011   2010
 
Cash flows from operating activities $ 1,199,458 $ 651,582
Settlements paid on derivatives not designated as hedges (a)   (84,854 )   (13,824 )

Cash flows from operating activities adjusted for settlements paid on derivatives not designated as hedges

$ 1,114,604   $ 637,758  
         

(a) Amounts are presented in cash flows from investing activities for GAAP purposes.

 
 

Concho Resources Inc.
Costs Incurred
Unaudited

The table below provides the costs incurred for the three months and years ended December 31, 2011 and 2010.

             
Costs incurred for oil and natural gas producing activities (a)
                             
 
Three Months Ended Years Ended
December 31, December 31,
(in thousands)       2011   2010   2011   2010
 
Property acquisition costs:
Proved $ 94,510 $ 1,206,877 $ 163,658 $ 1,224,378
Unproved 243,549 443,785 361,321 475,688
Exploration 152,590 64,124 562,679 200,797
Development   176,934   158,400   744,481   492,622
Total costs incurred for oil and natural gas properties $ 667,583 $ 1,873,186 $ 1,832,139 $ 2,393,485
                             
 
 
(a) The costs incurred for oil and natural gas producing activities includes the following amounts of asset retirement obligations:
                         
 
Three Months Ended Years Ended
December 31, December 31,
(in thousands)     2011   2010   2011   2010
 
Proved property acquisition costs $ 379 $ 8,290 $ 527 $ 8,290
Exploration costs 1,346 211 2,184 784
Development costs   9,730   14,838   11,824   13,611
Total $ 11,455 $ 23,339 $ 14,535 $ 22,685
                           
 
 

Concho Resources Inc.
Derivatives Information
Unaudited

The table below provides data associated with the Company’s derivatives at February 22, 2012.

                                         
                   
2012
First Second Third Fourth
Quarter Quarter Quarter Quarter Total 2013 2014 2015 2016
 
Oil Swaps:
Volume (Bbl) 3,662,500 3,539,500 3,193,500 2,941,500 13,337,000 10,055,000 2,707,000 692,000 81,000
NYMEX price (Bbl) (a) $ 94.30 $ 94.27 $ 95.16 $ 95.07 $ 94.67 $ 95.12 $ 89.99 $ 85.24 $ 89.65
 
Natural Gas Swaps:
Volume (MMBtu) 75,000 75,000 75,000 75,000 300,000 - - - -
NYMEX price (MMBtu) (b) $ 6.54 $ 6.54 $ 6.54 $ 6.54 $ 6.54 - - - -
 
                                         

(a)

The index prices for the oil contracts are based on the NYMEX-West Texas Intermediate monthly average futures price.

(b)

  The index prices for the natural gas contracts are based on the NYMEX-Henry Hub last trading day of the month futures price.

Source: Concho Resources Inc.

Concho Resources Inc.
Toffee McAlister, 432-683-7443
Director, Investor Relations & Corporate Communications