Concho Resources Inc. (NYSE: CXO) today reported
financial and operating results for second-quarter 2020.
Second-Quarter 2020 Highlights
- Generated cash flow from operating activities of $689 million.
Operating cash flow before working capital changes (non-GAAP)
totaled $550 million, exceeding capital expenditures of $312
million and resulting in $238 million of free cash flow
(non-GAAP).
- Delivered oil production volumes of 200 MBopd.
- Demonstrated excellent cost control, driving an increase in the
Company’s full-year 2020 operating and G&A cost reduction
target to more than $135 million.
- Continued to capture efficiency gains, resulting in a further
reduction in the Company’s outlook for well costs.
- Quickly aligned drilling and completion activity with
prevailing market conditions, with capital spending down 44% as
compared to first-quarter 2020.
- Reported net loss of $435 million, or $2.23 per share. Adjusted
net income (non-GAAP) was $223 million, or $1.13 per share.
- Generated $632 million of adjusted EBITDAX (non-GAAP).
See “Supplemental Non-GAAP Financial Measures” below for
descriptions of the above non-GAAP measures as well as
reconciliations of these measures to the associated GAAP (as
defined herein) measures.
Tim Leach, Chairman and Chief Executive Officer, commented, “Our
organization continues to deliver solid results despite an
extremely challenging environment. Across our key initiatives,
including reducing costs and improving productivity, the business
performed very well and demonstrated our resilience. We remain
focused on these initiatives as we position the company to deliver
value over the long term.”
Second-Quarter 2020 Summary
Second-quarter 2020 oil production volumes totaled 200 thousand
barrels per day (MBopd), compared with 206 MBopd produced in the
same period a year ago. Natural gas production for second-quarter
2020 totaled 719 million cubic feet per day (MMcfpd). The Company’s
total production for second-quarter 2020 was 319 thousand barrels
of oil equivalent per day (MBoepd), compared with 329 MBoepd
produced in the same period a year ago.
Concho’s average realized price for oil and natural gas for
second-quarter 2020, excluding the effect of commodity derivatives,
was $23.66 per Bbl and $0.68 per Mcf, respectively.
Net loss for second-quarter 2020 was $435 million, or $2.23 per
share. Special items impacting earnings for the quarter included a
$107 million gain on the disposition of assets as a result of the
Company’s transaction with Solaris Midstream Holdings, LLC
(“Solaris”), and $27 million of charges associated with the
Company’s voluntary separation program. Excluding these and other
special items, adjusted net income (non-GAAP) for second-quarter
2020 was $223 million, or $1.13 per share.
Increasing Cost Reduction Target
For second-quarter 2020, controllable costs totaled $7.49 per
Boe, representing a 25% decrease year over year. Controllable costs
include production expenses (consisting of lease operating and
workover expenses), cash general and administrative (G&A)
expenses (which excludes non-cash stock-based compensation) and
interest expense.
The Company increased its full-year 2020 operating and G&A
cost reduction target to more than $135 million, representing an
incremental $35 million in annual savings as compared to the
Company's prior target. With these additional savings, the Company
expects to hold full-year 2020 controllable costs below $8.50 per
Boe.
Quickly Reduced Development Activity
Concho is prudently and dynamically managing its capital program
in response to challenging macroeconomic conditions, the severe
decline in commodity prices and reduced demand for oil and natural
gas. During second-quarter 2020, the Company averaged 11 rigs and
four completion crews, as compared to 18 rigs and seven completion
crews in first-quarter 2020. Capital expenditures for
second-quarter 2020 totaled $312 million, representing a 44%
decline as compared to first-quarter 2020. Capital expenditures
refers to the Company’s additions to oil and natural gas properties
on the Company’s condensed consolidated statements of cash
flows.
Although Concho has reduced activity across its portfolio, the
Company continues to focus on enhancing capital efficiency with
sustainable drilling and completion cost savings and improved well
productivity. As a result of these operational efficiencies and
service cost deflation, the Company currently expects full-year
2020 well costs (drilling, completion and equipment) to average
less than $800 per foot, which represents a $50 per foot decrease
from the Company’s prior guidance and a 30% decrease in well costs
year over year.
Generated Strong Cash Flow
The Company’s hedging strategy combined with excellent cost
control resulted in strong cash flow generation during the quarter.
For second-quarter 2020, cash flow from operating activities was
$689 million, including $139 million in working capital changes.
Operating cash flow before working capital changes (non-GAAP),
which includes $30 million of cash charges associated with the
Company’s voluntary separation program, was $550 million, exceeding
second-quarter capital expenditures of $312 million.
Significant Financial Flexibility
Concho maintains a strong financial position with
investment-grade credit ratings and substantial liquidity. At June
30, 2020, Concho had long-term debt of $4 billion, with no
outstanding debt maturities until January 2025, no debt outstanding
under its credit facility and $320 million in cash and cash
equivalents.
Following four consecutive quarters of free cash flow
generation, the Company has reduced net debt (non-GAAP) by
approximately $710 million since June 30, 2019 to $3.6 billion. The
Company is targeting an additional $600 million reduction in net
debt.
Hedge Position Mitigates Cash Flow Volatility
The Company’s commodity derivatives strategy mitigates Concho’s
exposure to commodity price fluctuations. For the remainder of
2020, Concho has crude oil swap contracts covering approximately
143 MBopd and 28 MBopd at weighted average prices of $53 per Bbl
WTI and $49 per Bbl Brent, respectively. Additionally, the Company
has approximately 132 MBopd of Midland-Cushing oil basis swaps at a
weighted average price of $(0.62) per Bbl, which mitigates exposure
to field-level pricing weakness.
Please see the table under “Derivatives Information” below for
detailed information about Concho’s current derivatives
positions.
Outlook
The Company’s full-year 2020 production and capital expenditure
expectations are unchanged at 197 MBopd and $1.6 billion,
respectively. Controllable costs are forecasted to be approximately
$250 million in the third and fourth quarters of 2020, and oil and
gas production taxes are forecasted to be 8% to 10% of oil and gas
revenues.
Second-Quarter 2020 Conference Call
Concho will host a conference call tomorrow, July 30, 2020, at
8:00 AM CT (9:00 AM ET) to discuss second-quarter 2020 results. The
telephone number and passcode to access the conference call are
provided below:
Dial-in: (844) 263-8298 Intl. dial-in: (478) 219-0007
Participant Passcode: 9499762
To access the live webcast and view the related earnings
presentation, visit Concho’s website at www.concho.com. The
replay will also be available on the Company’s website under the
“Investors” section.
About Concho Resources
Concho Resources (NYSE: CXO) is one of the largest
unconventional shale producers in the Permian Basin, with
operations focused on safely and efficiently developing and
producing oil and natural gas resources. We are working today to
deliver a better tomorrow for our shareholders, people and
communities. For more information about Concho, visit
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, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
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. The
words “estimate,” “project,” “predict,” “believe,” “expect,”
“anticipate,” “potential,” “could,” “may,” “enable,” “strategy,”
“intend," “positioned,” “foresee,” “plan,” “will,” “guidance,”
“outlook,” “goal,” "target" or other similar expressions that
convey the uncertainty of future events or outcomes 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, current plans, anticipated
future developments, expected financings, the impact of the
COVID-19 pandemic and the actions taken by regulators and third
parties in response to such pandemic 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 risk factors and other information
discussed or referenced in the Company’s most recent Annual Report
on Form 10-K and other filings with the Securities and Exchange
Commission. In particular, the unprecedented nature of the current
economic downturn, pandemic and industry decline may make it
particularly difficult to identify risks or predict the degree to
which identified risks will impact the Company’s business and
financial condition. 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. Information on
Concho’s website is not part of this press release.
Use of Non-GAAP Financial Measures
To supplement the presentation of the Company’s financial
results prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”), this press release contains certain
financial measures that are not prepared in accordance with GAAP,
including adjusted net income, adjusted earnings per share,
adjusted EBITDAX, operating cash flow before working capital
changes, free cash flow and net debt.
See “Supplemental Non-GAAP Financial Measures” below for a
description and reconciliation of each non-GAAP measure presented
in this press release to the most directly comparable financial
measure calculated in accordance with GAAP. For future periods, the
Company is unable to provide a reconciliation of net debt to the
most comparable GAAP financial measures because the information
needed to reconcile this measure is dependent on future events,
many of which are outside management’s control. Additionally,
estimating net debt to provide a meaningful reconciliation
consistent with the Company’s policies for future periods is
extremely difficult and requires a level of precision that is
unavailable for these future periods and cannot be accomplished
without unreasonable effort. Forward-looking estimate of net debt
is estimated in a manner consistent with the relevant definitions
and assumptions noted herein.
Concho Resources Inc.
Condensed Consolidated Balance
Sheets
Unaudited
(in millions, except share and per
share amounts)
June 30, 2020
December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$
320
$
70
Accounts receivable, net:
Oil and natural gas
351
584
Joint operations and other
156
304
Inventory
27
30
Derivative instruments
467
6
Prepaid costs and other
46
61
Total current assets
1,367
1,055
Property and equipment:
Oil and natural gas properties, successful
efforts method
26,913
28,785
Accumulated depletion and depreciation
(16,419
)
(7,895
)
Total oil and natural gas properties,
net
10,494
20,890
Other property and equipment, net
448
437
Total property and equipment, net
10,942
21,327
Deferred income taxes
45
—
Deferred loan costs, net
6
7
Goodwill
—
1,917
Intangible assets, net
16
17
Noncurrent derivative instruments
80
11
Other assets
324
398
Total assets
$
12,780
$
24,732
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable - trade
$
52
$
53
Revenue payable
172
268
Accrued drilling costs
191
386
Derivative instruments
6
112
Other current liabilities
339
363
Total current liabilities
760
1,182
Long-term debt
3,957
3,955
Deferred income taxes
—
1,654
Noncurrent derivative instruments
4
7
Asset retirement obligations and other
long-term liabilities
139
152
Stockholders’ equity:
Common stock, $0.001 par value;
300,000,000 authorized; 197,951,047 and 198,863,681 shares issued
at June 30, 2020 and December 31, 2019, respectively
—
—
Additional paid-in capital
14,543
14,608
Retained earnings (accumulated
deficit)
(6,472
)
3,320
Treasury stock, at cost; 1,243,576 and
1,175,026 shares at June 30, 2020 and December 31, 2019,
respectively
(151
)
(146
)
Total stockholders’ equity
7,920
17,782
Total liabilities and stockholders’
equity
$
12,780
$
24,732
Concho Resources Inc.
Condensed Consolidated
Statements of Operations
Unaudited
Three Months Ended June
30,
Six Months Ended June
30,
(in millions, except per share
amounts)
2020
2019
2020
2019
Operating revenues:
Oil sales
$
430
$
1,049
$
1,302
$
1,984
Natural gas sales
44
78
94
247
Total operating revenues
474
1,127
1,396
2,231
Operating costs and expenses:
Oil and natural gas production
127
188
291
362
Production and ad valorem taxes
51
84
125
170
Gathering, processing and
transportation
43
22
93
48
Exploration and abandonments
16
17
2,735
64
Depreciation, depletion and
amortization
271
478
795
943
Accretion of discount on asset retirement
obligations
2
2
4
5
Impairments of long-lived assets
—
868
7,772
868
Impairments of goodwill
—
—
1,917
—
General and administrative (including
non-cash stock-based compensation of $17 and $23 for the three
months ended June 30, 2020 and 2019, respectively, and $35 and $47
for the six months ended June 30, 2020 and 2019, respectively)
65
88
134
179
(Gain) loss on derivatives, net
514
(217
)
(1,255
)
842
Net (gain) loss on disposition of assets
and other
(107
)
2
(100
)
1
Total operating costs and expenses
982
1,532
12,511
3,482
Loss from operations
(508
)
(405
)
(11,115
)
(1,251
)
Other income (expense):
Interest expense
(41
)
(48
)
(83
)
(95
)
Other, net
(18
)
303
(213
)
307
Total other income (expense)
(59
)
255
(296
)
212
Loss before income taxes
(567
)
(150
)
(11,411
)
(1,039
)
Income tax benefit
132
53
1,699
247
Net loss
$
(435
)
$
(97
)
$
(9,712
)
$
(792
)
Earnings per share:
Basic net loss
$
(2.23
)
$
(0.48
)
$
(49.73
)
$
(3.98
)
Diluted net loss
$
(2.23
)
$
(0.48
)
$
(49.73
)
$
(3.98
)
Concho Resources Inc. Earnings per
Share Unaudited
The Company uses the two-class method of calculating earnings
per share because certain of the Company’s unvested share-based
awards qualify as participating securities.
The Company’s basic earnings (loss) per share attributable to
common stockholders is computed as (i) net income (loss) as
reported, (ii) less participating basic earnings (iii) divided by
weighted average basic common shares outstanding. The Company’s
diluted earnings (loss) per share attributable to common
stockholders is computed as (i) basic earnings (loss) attributable
to common stockholders, (ii) plus reallocation of participating
earnings (iii) divided by weighted average diluted common shares
outstanding.
The following table reconciles the Company’s loss from
operations and loss attributable to common stockholders to the
basic and diluted loss used to determine the Company’s loss per
share amounts for the periods indicated under the two-class
method:
Three Months Ended June
30,
Six Months Ended June
30,
(in millions)
2020
2019
2020
2019
Net loss as reported
$
(435
)
$
(97
)
$
(9,712
)
$
(792
)
Participating basic earnings (a)
—
—
(1
)
—
Basic loss attributable to common
stockholders
(435
)
(97
)
(9,713
)
(792
)
Reallocation of participating earnings
—
—
—
—
Diluted loss attributable to common
stockholders
$
(435
)
$
(97
)
$
(9,713
)
$
(792
)
(a) Unvested restricted stock awards
represent participating securities because they participate in
nonforfeitable dividends or distributions with the common equity
holders of the Company. Participating earnings represent the
distributed and undistributed earnings of the Company attributable
to the participating securities. Unvested restricted stock awards
do not participate in undistributed net losses as they are not
contractually obligated to do so.
The following table is a reconciliation of the basic weighted
average common shares outstanding to diluted weighted average
common shares outstanding for the periods indicated:
Three Months Ended June
30,
Six Months Ended June
30,
(in thousands)
2020
2019
2020
2019
Weighted average common shares
outstanding:
Basic
195,285
199,185
195,305
199,184
Dilutive performance units
—
—
—
—
Diluted
195,285
199,185
195,305
199,184
Concho Resources Inc.
Condensed Consolidated
Statements of Cash Flows
Unaudited
Six Months Ended June
30,
(in millions)
2020
2019
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$
(9,712
)
$
(792
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation, depletion and
amortization
795
943
Accretion of discount on asset retirement
obligations
4
5
Impairments of long-lived assets
7,772
868
Impairments of goodwill
1,917
—
Exploration and abandonments
2,724
51
Non-cash stock-based compensation
expense
35
47
Deferred income taxes
(1,699
)
(247
)
Net gain on disposition of assets and
other non-operating items
(105
)
(288
)
(Gain) loss on derivatives, net
(1,255
)
842
Net settlements received from (paid on)
derivatives
616
(50
)
Other
202
(10
)
Changes in operating assets and
liabilities, net of acquisitions and dispositions:
Accounts receivable
345
33
Prepaid costs and other
16
4
Inventory
2
1
Accounts payable
(1
)
5
Revenue payable
(96
)
5
Other current liabilities
(35
)
(15
)
Net cash provided by operating
activities
1,525
1,402
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to oil and natural gas
properties
(868
)
(1,699
)
Changes in working capital associated with
oil and natural gas property additions
(149
)
(27
)
Acquisitions of oil and natural gas
properties
(34
)
(14
)
Additions to property, equipment and other
assets
(39
)
(41
)
Proceeds from the disposition of
assets
3
311
Direct transaction costs for asset
acquisitions and dispositions
(1
)
(3
)
Net cash used in investing activities
(1,088
)
(1,473
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under credit facility
345
2,060
Payments on credit facility
(345
)
(1,905
)
Payment of common stock dividends
(79
)
(50
)
Purchases of treasury stock
(5
)
(14
)
Purchases of common stock under share
repurchase program
(100
)
—
Decrease in book overdrafts
—
(16
)
Other
(3
)
(4
)
Net cash provided by (used in) financing
activities
(187
)
71
Net increase in cash and cash
equivalents
250
—
Cash and cash equivalents at beginning of
period
70
—
Cash and cash equivalents at end of
period
$
320
$
—
Concho Resources Inc.
Summary Production and Price
Data
Unaudited
The following table sets forth summary
information concerning production and operating data for the
periods indicated:
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Production and operating data:
Net production volumes:
Oil (MBbl)
18,175
18,726
37,195
37,662
Natural gas (MMcf)
65,395
67,104
129,047
130,873
Total (MBoe)
29,074
29,910
58,703
59,474
Average daily production
volumes:
Oil (MBbl)
200
206
204
208
Natural gas (MMcf)
719
737
709
723
Total (MBoe)
319
329
323
329
Average prices per unit: (a)
Oil, without derivatives (Bbl)
$
23.66
$
56.02
$
35.01
$
52.68
Oil, with derivatives (Bbl) (b)
$
45.74
$
53.15
$
50.42
$
51.35
Natural gas, without derivatives (Mcf)
$
0.68
$
1.16
$
0.73
$
1.88
Natural gas, with derivatives (Mcf)
(b)
$
0.88
$
1.22
$
1.06
$
1.89
Total, without derivatives (Boe)
$
16.31
$
37.68
$
23.79
$
37.51
Total, with derivatives (Boe) (b)
$
30.57
$
36.02
$
34.28
$
36.68
Operating costs and expenses per Boe:
(a)
Oil and natural gas production
$
4.37
$
6.31
$
4.96
$
6.09
Production and ad valorem taxes
$
1.74
$
2.81
$
2.13
$
2.86
Gathering, processing and
transportation
$
1.48
$
0.73
$
1.58
$
0.80
Depreciation, depletion and
amortization
$
9.32
$
15.96
$
13.54
$
15.86
General and administrative
$
2.26
$
2.89
$
2.31
$
2.98
(a)
Per unit and per Boe amounts calculated
using dollars and volumes rounded to thousands.
(b)
Includes the effect of net cash receipts
from (payments on) derivatives:
Three Months Ended June
30,
Six Months Ended June
30,
(in millions)
2020
2019
2020
2019
Net cash receipts from (payments on)
derivatives:
Oil derivatives
$
401
$
(54
)
$
573
$
(51
)
Natural gas derivatives
14
4
43
1
Total
$
415
$
(50
)
$
616
$
(50
)
The presentation of average prices with
derivatives is a result of including the net cash receipts from
(payments on) commodity derivatives that are presented in the
Company's condensed consolidated statements of cash flows. This
presentation of average prices with derivatives is a means by which
to reflect the actual cash performance of the Company's 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.
Operational Activity
Unaudited
The tables below provide a summary of
operational activity for second-quarter 2020:
Total Activity (Gross):
Number of Wells
Drilled
Number of Wells
Completed
Number of Wells Put on
Production
Delaware Basin
33
15
44
Midland Basin
30
30
20
Total
63
45
64
Total Activity (Gross
Operated):
Number of Wells
Drilled
Number of Wells
Completed
Number of Wells Put on
Production
Delaware Basin
17
12
34
Midland Basin
30
30
20
Total
47
42
54
Total Activity (Net Operated):
Number of Wells
Drilled
Number of Wells
Completed
Number of Wells Put on
Production
Delaware Basin
17
9
30
Midland Basin
27
27
13
Total
44
36
43
Concho Resources Inc.
Derivatives
Information
Unaudited
The table below provides data associated
with the Company’s derivatives at July 29, 2020, for the periods
indicated:
2020
Third Quarter
Fourth Quarter
Total
2021
2022
Oil Price Swaps – WTI:
(a)
Volume (MBbl)
14,147
12,116
26,263
32,482
6,969
Price per Bbl
$
52.22
$
53.50
$
52.81
$
46.89
$
41.38
Oil Price Swaps – Brent:
(b)
Volume (MBbl)
2,756
2,477
5,233
6,023
1,095
Price per Bbl
$
49.75
$
49.11
$
49.45
$
40.82
$
45.55
Oil Basis Swaps: (c)
Volume (MBbl)
13,054
11,192
24,246
30,657
6,570
Price per Bbl
$
(0.57
)
$
(0.69
)
$
(0.62
)
$
0.50
$
0.25
WTI Oil Roll Swaps: (d)
Volume (MBbl)
2,303
4,876
7,179
730
—
Price per Bbl
$
(0.20
)
$
(0.20
)
$
(0.20
)
$
(0.18
)
$
—
Natural Gas Price Swaps: (e)
Volume (BBtu)
35,858
34,938
70,796
97,600
36,500
Price per MMBtu
$
2.41
$
2.44
$
2.42
$
2.50
$
2.38
Natural Gas Basis Swaps –
HH/EPP: (f)
Volume (BBtu)
27,285
26,370
53,655
83,030
36,500
Price per MMBtu
$
(0.94
)
$
(0.95
)
$
(0.94
)
$
(0.68
)
$
(0.72
)
Natural Gas Basis Swaps –
HH/WAHA: (g)
Volume (BBtu)
8,590
8,280
16,870
25,550
7,300
Price per MMBtu
$
(1.00
)
$
(1.03
)
$
(1.02
)
$
(0.80
)
$
(0.85
)
Propane Price Swaps: (h)
Volume (gal)
46,326
50,232
96,558
—
—
Price per gal
$
0.52
$
0.52
$
0.52
$
—
$
—
(a)
These oil derivative contracts are settled
based on the New York Mercantile Exchange (“NYMEX”) – West Texas
Intermediate (“WTI”) calendar-month average futures price.
(b)
These oil derivative contracts are settled
based on the Brent calendar-month average futures price.
(c)
The basis differential price is between
Midland – WTI and Cushing – WTI. These contracts are settled on a
calendar-month basis.
(d)
These oil derivative contracts are settled
based on differentials between the NYMEX – WTI prices for certain
futures contracts.
(e)
These natural gas derivative contracts are
settled based on the NYMEX – Henry Hub last trading day futures
price.
(f)
The basis differential price is between
NYMEX – Henry Hub and El Paso Permian.
(g)
The basis differential price is between
NYMEX – Henry Hub and WAHA.
(h)
These contracts are settled based on the
OPIS Mont Belvieu Propane (non-TET) calendar-month average futures
price.
Concho Resources Inc. Supplemental
Non-GAAP Financial Measures Unaudited
The Company reports its financial results in accordance with the
United States generally accepted accounting principles (GAAP).
However, the Company believes certain non-GAAP performance measures
may provide financial statement users with additional meaningful
comparisons between current results, the results of its peers and
the results of prior periods. In addition, the Company believes
these measures are used by analysts and others in the valuation,
rating and investment recommendations of companies within the oil
and natural gas exploration and production industry. See the
reconciliations throughout this release of GAAP financial measures
to non-GAAP financial measures for the periods indicated.
Reconciliation of Net Loss to Adjusted Net Income and
Adjusted Earnings per Share
The Company’s presentation of adjusted net income and adjusted
earnings per share that exclude the effect of certain items are
non-GAAP financial measures. Adjusted net income and adjusted
earnings per share represent earnings (loss) and diluted earnings
(loss) per share determined under GAAP without regard to certain
non-cash and special items. The Company believes these measures
provide useful information to analysts and investors for analysis
of its operating results on a recurring, comparable basis from
period to period. Adjusted net income and adjusted earnings per
share should not be considered in isolation or as a substitute for
earnings (loss) or diluted earnings (loss) per share as determined
in accordance with GAAP and may not be comparable to other
similarly titled measures of other companies.
The following table provides a reconciliation from the GAAP
measure of net loss to adjusted net income, both in total and on a
per diluted share basis, for the periods indicated:
Three Months Ended June
30,
Six Months Ended June
30,
(in millions, except per share
amounts)
2020
2019
2020
2019
Net loss - as reported
$
(435
)
$
(97
)
$
(9,712
)
$
(792
)
Adjustments for certain non-cash and
special items:
(Gain) loss on derivatives, net
514
(217
)
(1,255
)
842
Net cash received from (paid on)
derivatives
415
(50
)
616
(50
)
Impairments of long-lived assets
—
868
7,772
868
Impairments of goodwill
—
—
1,917
—
Unproved impairments and leasehold
abandonments
8
12
2,721
42
Net gain on disposition of assets and
other
(105
)
(285
)
(99
)
(286
)
(Gain) loss on equity method
investments
(2
)
(17
)
194
(17
)
Voluntary separation program costs (b)
27
—
27
—
Tax impact (a)
(193
)
(70
)
(2,245
)
(317
)
Changes in deferred taxes and other
estimates
(6
)
(5
)
429
(7
)
Adjusted net income
$
223
$
139
$
365
$
283
Loss per diluted share - as
reported
$
(2.23
)
$
(0.48
)
$
(49.73
)
$
(3.98
)
Adjustments for certain non-cash and
special items per diluted share:
(Gain) loss on derivatives, net
2.63
(1.08
)
(6.43
)
4.22
Net cash received from (paid on)
derivatives
2.12
(0.25
)
3.15
(0.25
)
Impairments of long-lived assets
—
4.30
39.80
4.36
Impairments of goodwill
—
—
9.81
—
Unproved impairments and leasehold
abandonments
0.04
0.06
13.93
0.21
Net gain on disposition of assets and
other
(0.54
)
(1.41
)
(0.51
)
(1.43
)
(Gain) loss on equity method
investments
(0.01
)
(0.08
)
0.99
(0.09
)
Voluntary separation program costs
0.14
—
0.14
—
Tax impact
(0.99
)
(0.35
)
(11.49
)
(1.59
)
Changes in deferred taxes and other
estimates
(0.03
)
(0.02
)
2.20
(0.04
)
Adjusted earnings per diluted
share
$
1.13
$
0.69
$
1.86
$
1.41
Adjusted earnings per share:
Basic earnings
$
1.13
$
0.69
$
1.86
$
1.41
Diluted earnings
$
1.13
$
0.69
$
1.86
$
1.41
(a) Estimated using statutory tax rate in
effect for the period.
(b) In May 2020, the Company offered
employees who met certain eligibility criteria the option to
participate in a voluntary separation program.
Reconciliation of Net Loss to Adjusted EBITDAX
Adjusted EBITDAX (as defined below) is presented herein and
reconciled from the GAAP measure of net income (loss) because of
its wide acceptance by the investment community as a financial
indicator.
The Company defines adjusted EBITDAX as net loss, plus (1)
exploration and abandonments, (2) depreciation, depletion and
amortization, (3) accretion of discount on asset retirement
obligations, (4) impairments of long-lived assets, (5) impairments
of goodwill, (6) non-cash stock-based compensation, (7) (gain) loss
on derivatives, (8) net cash received from (paid on) derivatives,
(9) net gain on disposition of assets and other, (10) interest
expense, (11) (gain) loss on equity method investments, (12)
voluntary separation program costs and (13) income tax benefit.
Adjusted EBITDAX is not a measure of net income (loss) or cash
flows as determined by GAAP.
The Company’s adjusted EBITDAX measure provides additional
information that may be used to better understand the Company’s
operations. Adjusted 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 (loss) as an
indicator of operating performance. Certain items excluded from
adjusted 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 and depletable assets. Adjusted EBITDAX, as used by the
Company, may not be comparable to similarly titled measures
reported by other companies. The Company believes that adjusted
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 condensed consolidated financial
statements. For example, adjusted 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 the GAAP
measure of net loss to adjusted EBITDAX for the periods
indicated:
Three Months Ended June
30,
Six Months Ended June
30,
(in millions)
2020
2019
2020
2019
Net loss
$
(435
)
$
(97
)
$
(9,712
)
$
(792
)
Exploration and abandonments
16
17
2,735
64
Depreciation, depletion and
amortization
271
478
795
943
Accretion of discount on asset retirement
obligations
2
2
4
5
Impairments of long-lived assets
—
868
7,772
868
Impairments of goodwill
—
—
1,917
—
Non-cash stock-based compensation
17
23
35
47
(Gain) loss on derivatives, net
514
(217
)
(1,255
)
842
Net cash received from (paid on)
derivatives
415
(50
)
616
(50
)
Net gain on disposition of assets and
other
(105
)
(285
)
(99
)
(286
)
Interest expense
41
48
83
95
(Gain) loss on equity method
investments
(2
)
(17
)
194
(17
)
Voluntary separation program costs (a)
30
—
30
—
Income tax benefit
(132
)
(53
)
(1,699
)
(247
)
Adjusted EBITDAX
$
632
$
717
$
1,416
$
1,472
(a) In May 2020, the Company offered
employees who met certain eligibility criteria the option to
participate in a voluntary separation program.
Reconciliation of Net Cash Provided by Operating Activities
to Operating Cash Flow ("OCF") Before Working Capital Changes and
to Free Cash Flow
The Company provides OCF before working capital changes, which
is a non-GAAP financial measure. OCF before working capital changes
represents net cash provided by operating activities as determined
under GAAP without regard to changes in operating assets and
liabilities, net of acquisitions and dispositions as determined in
accordance with GAAP. The Company believes OCF before working
capital changes is an accepted measure of an oil and natural gas
company’s ability to generate cash used to fund development and
acquisition activities and service debt or pay dividends.
Additionally, the Company provides free cash flow, which is a
non-GAAP financial measure. Free cash flow is cash flow from
operating activities before changes in working capital in excess of
additions to oil and natural gas properties. The Company believes
that free cash flow is useful to investors as it provides a measure
to compare both cash flow from operating activities and additions
to oil and natural gas properties across periods on a consistent
basis.
The Company previously defined free cash flow for periods prior
to 2020 as cash flow from operating activities before changes in
working capital in excess of exploration and development costs
incurred. Exploration and development costs incurred include those
costs that are capitalized or charged to expense such as geological
and geophysical costs and capitalized asset retirement costs. The
Company’s new calculation better aligns with the way its industry
peers compute free cash flow and can be derived directly from line
items appearing on the Company’s statement of cash flows.
These non-GAAP measures should not be considered as alternatives
to, or more meaningful than, net cash provided by operating
activities as an indicator of operating performance.
The following tables provide a reconciliation from the GAAP
measure of net cash provided by operating activities to OCF before
working capital changes and to free cash flow; for a reconciliation
of free cash flow for the periods pertaining to the prior four
quarters, please refer to the reconciliations contained in the
Company’s 2Q20 Earnings Presentation posted on the Company’s
website under the Investors tab:
Three Months Ended June
30,
Six Months Ended June
30,
(in millions)
2020
2019
2020
2019
Net cash provided by operating
activities
$
689
$
779
$
1,525
$
1,402
Changes in cash due to changes in
operating assets and liabilities:
Accounts receivable
(223
)
(144
)
(345
)
(33
)
Prepaid costs and other
(14
)
5
(16
)
(4
)
Inventory
3
(1
)
(2
)
(1
)
Accounts payable
28
6
1
(5
)
Revenue payable
88
3
96
(5
)
Other current liabilities
(21
)
20
35
15
Total working capital changes
(139
)
(111
)
(231
)
(33
)
Operating cash flow before working
capital changes
$
550
$
668
$
1,294
$
1,369
Three Months Ended June
30,
Six Months Ended June
30,
(in millions)
2020
2019
2020
2019
Operating cash flow before working
capital changes
$
550
$
668
$
1,294
$
1,369
Additions to oil and natural gas
properties
(312
)
(781
)
(868
)
(1,699
)
Free cash flow
$
238
$
(113
)
$
426
$
(330
)
Reconciliation of Long-term Debt to Net Debt
The Company defines net debt as debt less cash and cash
equivalents. Net debt should not be considered an alternative to,
or more meaningful than, total debt, the most directly comparable
GAAP measure. Management uses net debt to determine the Company's
outstanding debt obligations that would not be readily satisfied by
its cash and cash equivalents on hand. The Company believes this
metric is useful to analysts and investors in determining the
Company's leverage position because the Company has the ability to,
and may decide to, use a portion of its cash and cash equivalents
to reduce debt.
(in millions)
June 30, 2020
December 31, 2019
June 30, 2019
Long-term debt
$
3,957
$
3,955
$
4,350
Cash and cash equivalents
(320
)
(70
)
—
Net debt
$
3,637
$
3,885
$
4,350
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200729005903/en/
INVESTOR RELATIONS Megan P. Hays Vice President of
Investor Relations & Public Affairs 432.685.2533
MEDIA Mary T. Starnes Manager of Public Affairs
& Corporate Responsibility Strategy 432.221.0477
Concho Resources (NYSE:CXO)
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