Concho Resources Inc. (CXO)

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Concho Resources (CXO)

Q4 2012 Earnings Call

February 21, 2013 10:00 am ET


L. Price Moncrief - Vice President of Capital Markets & Strategy and Director of Corporate Development

Timothy A. Leach - Chairman, Chief Executive Officer, President, Chairman of Concho Equity Holdings Corp and Chief Executive Officer of Concho Equity Holdings Corp

E. Joseph Wright - Chief Operating Officer and Senior Vice President


John Freeman - Raymond James & Associates, Inc., Research Division

Ryan Oatman - SunTrust Robinson Humphrey, Inc., Research Division

Pearce W. Hammond - Simmons & Company International, Research Division

Arun Jayaram - Crédit Suisse AG, Research Division

Ryan Todd - Deutsche Bank AG, Research Division

Mario Barraza - Tuohy Brothers Investment Research, Inc.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Irene O. Haas - Wunderlich Securities Inc., Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Concho Resources Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Price Moncrief, Vice President of Capital Markets and Strategy. Please proceed.

L. Price Moncrief

Good morning. We're glad you could join us today for Concho's Fourth Quarter 2012 Conference Call. Before we get started, I'd like to direct your attention to the forward-looking statement disclosure contained in the press release.

In summary, it says that statements in last night’s press release and on this conference call that state the company’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ materially from our expectations, including those we've described in the press release, our 10-K and our other filings with the SEC.

In addition, we will reference certain non-GAAP measures, so be sure to see the reconciliations in our earnings release or our most recent investor presentation. Both the earnings release and the investor presentation can be found on our website.

On today's call, I am joined by Tim Leach, our Chairman and CEO; as well as other members of our management team who will be available to take questions later in the call.

With that, I'd like to turn it over to Tim.

Timothy A. Leach

Good morning. Thanks for joining us today as we review our results for the fourth quarter and year, as well as our outlook for 2013. The fourth quarter was a good one for Concho. We produced over 89,000 BOEs per day and generated nearly $400 million in EBITDAX, both all-time records for the company. Fourth quarter production grew 5% over the third quarter, driven in large part by our oil growth, which was 7% over the third quarter. Full year '12 production came in at 29.8 million BOEs as at the top end of our annual production guidance and is 26% higher than the previous year. Adjusting for acquisitions during the year, organic production in '12 was 28.5 million BOEs, a 21% increase over '11. As notable, when you consider we deliver organic production growth in excess of 20% every year as a public company, but more importantly, we've delivered profitable growth over those 5.5 years.

2012 was an important year for Concho in terms of strategically positioning the company to keep that track record of profitable high return growth. While we greatly expanded our drilling inventory during the year, we also enhanced returns across our portfolio through a combination of the Three Rivers acquisition and our efforts over the second half of the year to accelerate horizontal activity in the northern Delaware Basin. The $1 billion Three Rivers acquisition was funded entirely with borrowings and a $500 million non-core asset divestiture. Since closing the acquisition in July, our team has identified nearly 2,400 drilling locations on Three Rivers assets, which represents about 20% of our total drilling inventory at year end. That's a material increase in inventory for a deal that didn't require any equity. And about half of those Three Rivers locations are located in the Delaware Basin where the returns are among the best in our portfolio.

Taking a look at our updated rate of return models in the latest investor presentation, you'll see the pre-tax returns across our Bone Spring inventory are between 50% and 60% at current commodity prices. That's an improvement over our last update and reflects the strength of our drilling results in '12.

As I've done over the previous quarters, I'd like to update you on our most recent progress in the northern Delaware, and I'm pleased to say that our results in the fourth quarter are the best to date. Since our last earnings call, we've added 25 northern Delaware Basin horizontal wells that have 30 days of production data, bringing our total horizontal wells in this area completed by Concho to 131, targeting 7 unique zones. The average 30-day production rate for those 25 new wells was in excess of 800 BOEs a day from single zone completions and averaged 70% crude oil. 17 of those 25 wells were Bone Spring completions, with an average 30-day rate over 850 BOEs and over 75% crude oil. Three of those Bone Spring wells averaged over 1,100 barrels a day of crude oil, not liquids, not equivalents, for the first 30 days.

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