Concho Resources Declares $13.2 Million Net Income In Q1 2009

Published: 06-May-2009

Concho Resources Inc. (Concho Resources), an oil and gas company, has reported total operating revenues of $86 million for the first quarter of 2009, compared with the total operating revenues of $106.7 million in the year-ago quarter. It also reported a net income of $13.2 million, or $0.16 per diluted share, for the first quarter of 2009, compared with the net income of $22.4 million, or $0.29 per diluted share, in the year-ago quarter.

Production for the first quarter of 2009 totaled 2.5 MMBoe (1.7 million barrels of oil (MMBbls) and five billion cubic feet of natural gas (Bcf), up 79% compared to 1.4 MMBoe (0.9 MMBbls and 3.1 Bcf) produced in the year-ago quarter. Pro forma for the company’s July 2008 acquisition of Henry Petroleum LP and certain of its affiliates, the first quarter of 2009 production increased 35% over the first quarter of 2008.

EBITDAX was $88.5 million for the first quarter of 2009, compared with the EBITDAX of $79.4 million in the year-ago quarter.

For the three months ended March 31, 2009, Concho Resources received cash receipts for settlements on derivatives contracts not designated as hedges of $37.1 million. The non-cash mark-to-market loss for the derivatives contracts not designated as hedges was $42.2 million. This is compared to cash payments of $4 million and a non-cash mark-to-market loss of $13.2 million in the year-ago quarter.

Timothy A. Leach, Concho Resources' chairman and chief executive officer commented, “During the first quarter of 2009, our production grew significantly over the fourth quarter of 2008 and the pro forma first quarter of 2008. This growth was driven by activities in our core area and by increasing contributions from the Lower Abo and Bakken oil plays. For the remainder of 2009, we will maintain an activity level consistent with our strategy of operating within cash flow while maintaining the flexibility to increase or decrease activity depending on changes in commodity prices and capital costs.”

Operating revenues for the first quarter of 2009 decreased 19% when compared to the first quarter of 2008, despite the 79% increase in production. This decline is attributable to the 59% decrease in Concho Resources’ realized oil price and the 58% decrease in the company’s realized natural gas price in the first quarter of 2009 compared with the year-ago quarter.

Exploration and abandonment’s costs for the first quarter of 2009 totaled $6 million, as compared to $2.7 million in the year-ago quarter. The raise is mainly associated with $3.9 million of leasehold abandonments in the first quarter of 2009 which relates mainly to the write-off of one prospect in New Mexico and two prospects in Texas, compared with $0.8 million of leasehold abandonments in the year-ago quarter.

Impairments of long-lived assets rose to $4.1 million in the first quarter of 2009 as compared with the $0.02 million in the year-ago quarter. This raise was mainly due to lower commodity prices and their effect on the resulting recoverability of the carrying value of certain properties in Eddy county, New Mexico at the end of the first quarter 2009 as compared to the year-ago quarter.

General and administrative expense (G&A) for the quarter ended March 31, 2009 totaled $11.7 million. Recurring cash G&A for the quarter totaled $7.2 million, stock-based compensation (non-cash) totaled $1.9 million, and the remaining $2.6 million was attributable to amounts owed to certain employees of the Henry Entities which are to be paid over a two year period beginning July 31, 2008 under the terms of the Henry Petroleum purchase agreement.

Operations

For the three months ended March 31, 2009, Concho Resources started the drilling of or took part in a total of 73 gross wells (67 operated), 36 of which had been concluded as producers, 37 of which were in progress and none of which were unsuccessful at March 31, 2009. Besides, the company took part in 34 gross recompletions (all operated), 28 of which had been completed as producers, six of which were in the process of development and none of which were unsuccessful at March 31, 2009. At present, Concho Resources is operating nine drilling rigs, all in the Permian basin; six of these rigs are drilling Yeso wells in New Mexico and three of these rigs are drilling Wolfberry wells in Texas.

New Mexico Permian

For the three months ended March 31, 2009, Concho Resources has drilled 41 wells (all operated) and initiated 33 recompletions (all operated) on its New Mexico Permian assets, with a 100% success rate on the 22 wells and the 27 recompletions that had been concluded by March 31, 2009.

Texas Permian

For the three months ended March 31, 2009, Concho Resources has drilled 26 wells (all operated) and initiated one operated recompletion on its Texas Permian assets, with a 100% success rate on the eleven wells and the one recompletion that had been concluded by March 31, 2009.

Lower Abo and Bakken Oil Plays

Concho Resources concluded and placed on production three operated Lower Abo oil wells in the first quarter of 2009. So far, Concho Resources has drilled eight operated wells in the Lower Abo oil play and took part in an additional six wells for a total of fourteen wells in the play. In the first quarter of 2009, production from the Lower Abo wells, net to the company’s interest, averaged about 1,300 barrels of oil equivalents per day (Boepd).

In addition, Concho Resources took part in three Bakken wells during the quarter ended March 31, 2009. In total, the company has participated as a non-operator in 31 Bakken wells in North Dakota, and in the first quarter of 2009 production from the Bakken, net to the company’s interest, averaged about 400 Boepd.

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