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Concho Resources (CXO)
Q1 2013 Earnings Call
May 02, 2013 10:00 am ET
L. Price Moncrief - Vice President of Capital Markets & Strategy and Director of Corporate Development
Previous Statements by CXO
» Concho Resources Management Discusses Q4 2012 Results - Earnings Call Transcript
» Concho Resources Management Discusses Q3 2012 Results - Earnings Call Transcript
» Concho Resources' CEO Discusses Q2 2012 Results - Earnings Call Transcript
E. Joseph Wright - Chief Operating Officer and Senior Vice President
Scott Hanold - RBC Capital Markets, LLC, Research Division
David Yedid - Crédit Suisse AG, Research Division
John Freeman - Raymond James & Associates, Inc., Research Division
Pearce W. Hammond - Simmons & Company International, Research Division
Ryan Todd - Deutsche Bank AG, Research Division
David R. Tameron - Wells Fargo Securities, LLC, Research Division
Brian Singer - Goldman Sachs Group Inc., Research Division
Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division
Michael S. Scialla - Stifel, Nicolaus & Co., Inc., Research Division
Ann L. Kohler - Imperial Capital, LLC, Research Division
Irene O. Haas - Wunderlich Securities Inc., Research Division
Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Concho Resources Inc. Earnings Conference Call. My name is Gwen, 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 turn the conference over to your host today, Mr. Price Moncrief, Vice President of Capital Markets and Strategy. Please proceed, sir.
L. Price Moncrief
Good morning. Thank you for joining us today for Concho's First Quarter Conference Call. Before we get started, I'd like to direct your attention to the forward-looking statement disclaimer 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 the 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'm joined by Tim Leach, our Chairman and CEO; as well as other members of our management team, who will be available to answer questions. With that, I'd like to turn the call over to Tim.
Timothy A. Leach
Thanks. Good morning. As I hope you saw in our press release last night, we reported our first quarter results. We're pleased with the operational performance of our business, despite the unprecedented widening of the Permian oil basis differential during the quarter. As we discussed on our last call, the Midland-to-Cushing basis differential had a $7.80 per barrel impact on our first quarter realizations. Much of this was related to the impact of Hurricane Sandy and the extended border refinery outage. These challenges seem to be behind us, and new pipeline capacity has already started to move Permian crude to the Gulf Coast. The average Midland-to-Cushing differential for April and May was $0.38 and $0.17 per barrel, respectively. More importantly, our oil realization guidance for the full year remains unchanged at 93% and 95% of NYMEX oil.
Through the first 3 months of the year, we're right on track to deliver on our annual production guidance and our $1.6 billion capital budget. Production for the quarter averaged 86,000 Boes per day, and our growth was driven entirely by our increased crude oil volumes, which were up over 3%. That oil growth was enough to push our overall crude oil mix up to 62%, which goes to show that our drilling efforts in the Delaware Basin are moving the needle. And I'm excited that we have an abundance of drilling opportunities in this world-class asset.
The Delaware Basin is clearly the focus of our operations today, where we've allocated over 50% of our '13 capital budget. Over the last 2 years, both the industry and Concho have made tremendous progress toward understanding the multi-zone potential of this play, and today over 2/3 of all Permian horizontal rigs are in the Delaware, targeting 7 unique play zones. This industry is a high-risk business, and we've always directed our capital and activity to areas with the highest risk-adjusted rate of return.
In 2013, we will drill more than twice as many wells in the Delaware than we did just 2 years ago. Our rig count in the Delaware currently stands at 12 and will likely continue to increase as we move forward through the year. The result of all this activity is that we have clearly established a core asset that now produces over 23,000 Boes a day and has a compounded quarterly growth rate of 25% since the beginning of '11.
It was just last year that we started to fund the acceleration of our horizontal Delaware program with cash flow from our Yeso and Wolfberry assets. Both the Yeso and Wolfberry have plenty of high-quality drilling opportunities remaining, but these assets are largely held by production. While our capital allocation strategy is evident by our rapid growth in the Delaware Basin, our legacy core areas are growing at a much slower rate. So when we talk about reinvesting our cash flow and growing organically in 2013, that company-wide growth will come almost exclusively from the Delaware Basin. This growth from the Delaware is sustainable and can be accelerated. We have over 4,200 drilling opportunities currently identified, all of which are in the Northern Delaware. Those locations are primarily in the Bone Spring sands and Avalon shale, where we have an established record of proven well results. And there is an opportunity to expand our inventory in the Delaware through additional Bone Spring and Avalon, and adding new zones like the Brushy Canyon, the Wolfcamp and the Penn Shale. A few months ago, we provided type curves and drilling economics for our Bone Spring and Avalon drilling inventory, which at current commodity prices provide for a 60% and a 40% rate of return, respectively.