Concho Resources Sees Boom in Delaware Basin in First-Quarter 2014, Ups Full-Year Capex to $2.6 Billion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Concho Resources Incorporated (NYSE:CXO) (Midland, Texas), an oil and gas exploration and development company, more than tripled its earnings in first-quarter 2014 following strong sales growth and operational improvements, including sharply improved drill times and nearly doubled production in the Delaware Basin. Net income was reported to be $91.31 million, compared with $30.09 million in first-quarter 2013.

Total revenues stood at $660.96 million, a 40% increase from the same period last year. The major drivers of the growth were production, which grew 18%, and unhedged realized oil and gas prices, which grew 12% and 38%, respectively. Average production of 101,600 barrels of oil equivalent per day exceeded the company's previous estimates by as much as 3,600 barrels. In the Delaware Basin alone, which has almost half of Concho's drilled wells, production increased 82% to 42,300 barrels of oil equivalent per day.

Concho added 37 new wells in the northern areas of the Delaware Basin and seven in the southern areas; those in the northern areas reported record-high average 30-day and 24-hour peak rates of 909 barrels and 1,488 barrels of oil equivalent per day, respectively. The Delaware Basin is located in West Texas and southeastern New Mexico.

Capital expenditures on oil and gas properties totaled $554.27 million, compared with $419.77 million in first-quarter 2013, while expenditures on other additions totaled $5.62 million, compared with $4.24 million in the same period last year. Also during the quarter, higher lease-operating and workover costs drove a 6% increase in oil and gas production expenses.

As part of its North American Oil & Gas Production Database, Industrial Info is tracking progress at 18 operational Concho facilities, including four oil and gas leases in Midland: Sallie B, Sallie 13, Parks Field and Pegasus Spraberry.

"We're proceeding through our development program faster and more efficiently than expected, primarily due to improved drilling times, additional frac crews, and shortened spud-to-sales cycles in each of our major horizontal areas," said Tim Leach, the chairman, president and chief executive officer of Concho, in a conference call. "Today, we're operating 33 rigs, 29 of which are horizontal, and expect to average 33 to 35 rigs over the remainder of the year. "

Concho's full-year capital budget for upstream projects rose to $2.6 billion, not including any future acquisitions. The company expects to drill another 40 wells before the end of the year. Concho also plans to build a crude oil transportation system in the northern Delaware Basin that will link much of its production in the area. The system is expected to be operational in the second half of 2015. The project, along with acreage acquisitions in the southern Delaware Basin, is expected to account for $100 million of the budget.

"While we're on track with our annual capital budget for the first three months of the year, it's clear that we'll complete our $2.3 billion budget earlier than expected," Leach said in the conference call. "By maintaining our activity level through the end of the year, we expect to drill more net wells that will add approximately $300 million to our 2014 capital budget. We're also increasing our 2014 growth guidance to [about] 24%, up from 18% to 22%, and expect to see even more barrels to arrive in 2015 as a result of incremental capital investment, which is weighted toward the second half of 2014."

Leach added that the company expects to average somewhere between 104,000 and 108,000 barrels of oil equivalent per day during the second quarter, which is typically a peak turnaround season for gas processers and refiners. He said that he expects the rate of growth to continue accelerating in the second half of 2014.

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