Concho Resources Inc. (NYSE:CXO) (the “Company” or
“Concho”) today reported proved reserves for 2014.
Highlights
- Concho increased proved reserves to a
record 637 million Boe, up 134 million Boe, or 27%, over year-end
2013 proved reserves.
- Strong results from the Company’s
horizontal development program in 2014 more than doubled horizontal
proved reserves and increased total resource potential to 3.7
billion Boe.
- The Company achieved 428% reserve
replacement at $14.02 per Boe drill-bit finding and development
cost.
- Full-year 2014 production increased 22%
over 2013, to 40.9 million Boe. Crude oil production increased 25%
year-over-year.
For an explanation of how we calculate and use the reserve
replacement ratio and drill-bit finding and development cost,
please see “Supplemental Non-GAAP Financial Measures” below.
Tim Leach, Chairman, Chief Executive Officer and President,
commented, “Concho delivered outstanding reserves growth for 2014
at low finding costs and replaced 428% of production. We also
delivered on our annual production target, achieving 22%
year-over-year growth with crude oil production up 25%. These
results demonstrate the strength of our technically-driven team,
the benefits of operating one of the Permian’s largest and most
efficient drilling programs and the realization of our ongoing
efforts to optimize well performance. The technical enhancements we
are applying across our Permian assets continue to expand our
resource base, which is now approximately 3.7 billion Boe.”
2014 Proved Reserves
At December 31, 2014, the Company’s estimated proved reserves
totaled 637 million barrels of oil equivalent (MMBoe), up 27% from
year-end 2013. The Company’s proved reserves are approximately 58%
crude oil and 42% natural gas. Proved developed reserves increased
24% year-over-year and represented 59% of total proved reserves.
The present value of the Company’s proved reserves, discounted at
10% (“PV-10”), increased 26% to $11.4 billion at year-end 2014. For
an explanation of how we calculate and use PV-10 (non-GAAP), please
see “Supplemental Non-GAAP Financial Measures” below.
Concho’s robust drilling program and positive results from
optimized drilling and completion techniques drove a 107% increase
in the Company’s horizontal proved reserves over year-end 2013. The
Company’s horizontal proved reserves accounted for 57% of total
proved reserves as of December 31, 2014, reflecting Concho’s
transition to large-scale horizontal development across its assets
in the Permian Basin. During 2014, Concho started drilling or
participated in 595 gross wells, of which 69% were horizontal.
Proved horizontal reserves have increased by more than 25x since
Concho initiated its horizontal development program in 2010.
The Delaware Basin continues to be Concho’s most significant
area of capital investment and growth. The Company’s proved
reserves in the Delaware Basin at year-end 2014 increased 77% over
year-end 2013 and accounted for 38% of total proved reserves.
The table below summarizes changes in estimated proved reserves
during the year ended December 31, 2014:
Estimated Proved (MMBoe)
Reserves Balance – December
31, 2013 503 Extensions and discoveries 182 Revisions of
previous estimates (13 ) Purchase of reserves-in-place 6 Production
(41 )
Balance – December 31, 2014 637
Proved developed reserves Balance – December 31, 2013 303
Balance – December 31, 2014 377
In 2014, Concho added 182 MMBoe of proved reserves as a result
of its drilling and completion program in the Permian Basin.
Negative revisions to previous estimates of 13 MMBoe were primarily
due to the reclassification of approximately 36 MMBoe of proved
undeveloped reserves attributable to vertical locations that the
Company does not plan to drill within five years of their initial
recording as required by SEC rules, partially offset by 23 MMBoe of
net positive revisions, resulting from performance and technical
evaluations.
Full-Year 2014 Production
Production for full-year 2014 totaled 40.9 MMBoe, or an average
of 112.0 MBoepd, up 22% over 2013. Production for 2014 consisted of
26.3 MMBbls of crude oil and 87.3 Bcf of natural gas. Crude oil
production increased 25% over 2013.
Costs Incurred
Costs incurred excluding acquisitions for 2014 were in-line with
the Company’s annual capital budget of $2.6 billion. Costs incurred
for property acquisitions were approximately $390 million for 2014.
For a summary of costs incurred for the year ended December 31,
2014, see “Costs Incurred” below.
Drill-bit finding and development cost was $14.02 per Boe for
2014, compared to $16.79 per Boe for 2013. At December 31, 2014,
the Company’s three-year average drill-bit finding and development
cost was $15.40 per Boe. For an explanation of how we calculate and
use drill-bit finding and development cost, please see
“Supplemental Non-GAAP Financial Measures” below.
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
primarily focused in the Permian Basin of Southeast New Mexico and
West Texas. For more information, visit the Company’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, drilling
program, 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 and analyses 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 Annual Report on Form 10-K; 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 the Company does 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 its
credit facility; the effects of government regulation, permitting
and other legal requirements, including new legislation or
regulation of hydraulic fracturing and the export of oil and
natural gas; environmental hazards, such as uncontrollable flows of
oil, natural gas, brine, well fluids, toxic gas or other pollution
into the environment, including groundwater contamination;
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 and liabilities related to the integration of
acquired properties or businesses; uncertainties about the
Company’s ability to successfully execute its 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, either
internationally or domestically; 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.
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.
We may use the terms “unproved reserves,” “resource potential,”
“estimated ultimate recovery (‘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. 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 Years Ended December
31, December 31, (in thousands)
2014 2013
2014 2013 Property
acquisition costs: Proved $ 39,003 $ 9,123 $ 99,362 $ 11,499
Unproved 184,378 26,706 292,363 85,538 Exploration 479,027 250,767
1,615,238 1,029,793 Development 327,711 145,424
937,491 738,430 Total costs incurred for oil and
natural gas properties $ 1,030,119 $ 432,020 $ 2,944,454 $
1,865,260
(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)
2014 2013
2014 2013 Exploration
costs $ 739 $ 583 $ 2,589 $ 2,672 Development costs 1,463
304 7,488 9,467 Total asset retirement
obligations $ 2,202 $ 887 $ 10,077 $ 12,139
Supplemental Non-GAAP Financial
Measures(Unaudited)
Reserve Replacement
The Company uses the reserve replacement ratio as an indicator
of the Company’s ability to replenish annual production volumes and
grow its reserves, thereby providing some information on the
sources of future production. It should be noted that the reserve
replacement ratio is a statistical indicator that has limitations.
The ratio is limited because it typically varies widely based on
the extent and timing of discoveries and property acquisitions. Its
predictive and comparative value is also limited for the same
reasons. In addition, since the ratio does not embed the cost or
timing of future production of new reserves, it cannot be used as a
measure of value creation. The reserve replacement ratio of 428%
was calculated by dividing net proved reserve additions of 175.1
MMBoe (the sum of extensions, discoveries, revisions and purchases)
by production of 40.9 MMBoe.
Finding and Development Cost
Finding and development cost is a non-GAAP measure used to
assist in an evaluation of how much it costs the Company, on a per
Boe basis, to add proved reserves. Drill-bit finding and
development costs are calculated by dividing the sum of exploration
costs and development costs of $2.6 billion by total reserve
extensions and discoveries of 182 MMBoe. This calculation does not
include the future development costs required for the development
of proved undeveloped reserves.
PV-10
The present value of our proved reserves, discounted at 10%
(“PV-10”), was estimated at $11.4 billion at December 31, 2014, and
was calculated based on the first-of-the-month, twelve-month
average prices for crude oil and natural gas of $91.48 per Bbl of
crude oil and $4.35 per MMBtu of natural gas.
PV-10 is derived from the standardized measure of discounted
future net cash flows, which is the most directly comparable GAAP
financial measure. PV-10 is a computation of the standardized
measure of discounted future net cash flows on a pre-tax basis.
PV-10 is equal to the standardized measure of discounted future net
cash flows at the applicable date, before deducting future income
taxes, discounted at 10 percent. The Company believes that the
presentation of the PV-10 is relevant and useful to investors
because it presents the discounted future net cash flows
attributable to our estimated net proved reserves prior to taking
into account future corporate income taxes, and it is a useful
measure for evaluating the relative monetary significance of our
oil and natural gas properties. Further, investors may utilize the
measure as a basis for comparison of the relative size and value of
our reserves to other companies. The Company uses this measure when
assessing the potential return on investment related to our oil and
natural gas properties. PV-10, however, is not a substitute for the
standardized measure of discounted future net cash flows. The
Company’s PV-10 measure and the standardized measure of discounted
future net cash flows do not purport to present the fair value of
our oil and natural gas reserves.
The following table provides a reconciliation of PV-10 to the
standardized measure of discounted future net cash flows at
December 31, 2014 and 2013, respectively:
December 31, (in millions)
2014 2013
PV-10 $ 11,385 $ 9,030 Present value of future income taxes
discounted at 10% (3,362 ) (2,786 ) Standardized
measure of discounted future net cash flows $ 8,023 $ 6,244
INVESTOR RELATIONSConcho Resources Inc.Megan P.
Hays, 432-685-2533Director of Investor RelationsJere Thompson,
432-221-0383Financial Analyst
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