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Press release from Business Wire

Concho Resources Inc. Reports Fourth Quarter and Full Year 2011 Financial and Operating Results

Wednesday, February 22, 2012

Concho Resources Inc. Reports Fourth Quarter and Full Year 2011 Financial and Operating Results16:15 EST Wednesday, February 22, 2012 MIDLAND, Texas (Business Wire) -- Concho Resources Inc. (NYSE: CXO) (“Concho” or the “Company”) today reported financial and operating results for the three months and year ended December 31, 2011. Highlights for the year ended December 31, 2011 include: Production of 23.6 million barrels of oil equivalent (“MMBoe”), an increase of 51% over 2010 Net income of $548.1 million, or $5.28 per diluted share, as compared to net income of $204.4 million, or $2.18 per diluted share, in 2010 Adjusted net income (non-GAAP)1 of $430.1 million, or $4.15 per diluted share, as compared to $254.1 million, or $2.71 per diluted share, in 2010 EBITDAX (non-GAAP)2 of $1,275.2 million for 2011, a 72% increase over 2010 1 Adjusted net income (non-GAAP) is comparable to securities analyst estimates. For an explanation of how we calculate adjusted net income (non-GAAP) and a reconciliation of net income (GAAP) to adjusted net income (non-GAAP), please see "Supplemental Non-GAAP Financial Measures" below. 2 For an explanation of how we calculate and use EBITDAX (non-GAAP) and a reconciliation of net income (GAAP) to EBITDAX (non-GAAP), please see "Supplemental Non-GAAP Financial Measures" below. Year End 2011 Financial Results Production for 2011 totaled 23.6 MMBoe (14.7 million barrels of oil (“MMBbls”) and 53.7 billion cubic feet of natural gas (“Bcf”)), an increase of 51% as compared to 15.6 MMBoe (10.3 MMBbls of oil and 31.4 Bcf of natural gas) produced in 2010. Production from continuing operations in 2011 increased 27% over 2010 production (after giving pro forma effect for all of 2010 to the properties acquired from Marbob Energy Corporation (“Marbob”) and the acquisition of certain properties in connection with the Marbob preferential purchase right dispute in 2010).The Company's 2010 and 2011 production includes production from its non-core Permian Basin asset divestiture in the fourth quarter of 2010 and its Bakken asset divestiture in the first quarter of 2011 that are now being reflected in discontinued operations in the Company's historical results.For more information, please see the “Summary Production and Operating Data” tables at the end of this press release. Timothy A. Leach, Concho's Chairman, CEO and President commented, “In 2011, Concho achieved record levels of production, cash flow and earnings. In addition to these achievements, we increased our net acreage position by over 40% in 2011 through bolt-on acquisitions and additional leasing efforts, furthering our resource exposure to the multiple pay intervals present in the Permian Basin. Today, we are well positioned to continue to execute our business strategy and to capitalize on the emerging opportunities in the Permian.” For 2011, the Company reported net income of $548.1 million, or $5.28 per diluted share, as compared to net income for 2010 of $204.4 million, or $2.18 per diluted share. The Company's 2011 results were impacted by several non-cash items, including a $61.5 million unrealized mark-to-market gain on commodity and interest rate derivatives, $5.7 million of leasehold abandonments, $0.4 million in impairments of long-lived assets and a $135.9 million gain related to the sale of the Bakken assets included in discontinued operations. Excluding these items and their tax effects, the 2011 adjusted net income (non-GAAP) was $430.1 million, or $4.15 per diluted share. Excluding similar non-cash items, and their tax impact plus a change in state statutory effective income tax rate for 2010, adjusted net income (non-GAAP) would have been $254.1 million, or $2.71 per diluted share. For a description and a reconciliation of net income (GAAP) to adjusted net income (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below. EBITDAX (defined as net income (loss), plus (1) exploration and abandonments expense, (2) depreciation, depletion and amortization expense, (3) accretion expense, (4) impairments of long-lived assets, (5) non-cash stock-based compensation expense, (6) bad debt expense, (7) unrealized (gain) loss on derivatives not designated as hedges, (8) (gain) loss on sale of assets, net, (9) interest expense, (10) federal and state income taxes on continuing operations, and (11) similar items listed above that are presented in discontinued operations) increased to $1,275.2 million in 2011, as compared to $743.0 million in 2010. For a reconciliation of net income (GAAP) to EBITDAX (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below. Oil and natural gas sales from continuing operations for 2011 increased 85% when compared to 2010. This increase is attributable to the 61% increase in production, the 19% increase in the Company's unhedged realized oil price and the 11% increase in the Company's unhedged realized natural gas price in 2011 compared to 2010. Oil and natural gas production expense from continuing operations for 2011, including taxes, totaled $308.0 million, or $13.10 per barrel of oil equivalent (“Boe”), a 15% increase per Boe from 2010. This increase was due primarily to higher lease operating expenses and workover costs, which averaged $7.08 per Boe in 2011 as compared to $5.94 per Boe in 2010, and higher oil and natural gas taxes, which averaged $6.02 per Boe in 2011 as compared to $5.48 per Boe in 2010. The per Boe increase in lease operating expenses is primarily due to an increase in the cost of services, primarily labor related and higher costs related to routine environmental related costs. Depreciation, depletion and amortization expense (“DD&A”) from continuing operations for 2011 totaled $428.4 million, or $18.21 per Boe, a 10% increase per Boe from 2010. The increase in depletion expense was primarily due to capitalized costs associated with new wells that were successfully drilled and completed in 2011 and the Marbob acquisition and the acquisition of certain properties in connection with the Marbob preferential purchase right dispute in 2010. General and administrative expense (“G&A”) from continuing operations for 2011 totaled $96.3 million, or $4.09 per Boe, as compared to $64.3 million, or $4.41 per Boe in 2010. Recurring cash G&A for 2011 totaled $77.0 million and stock-based compensation (non-cash) totaled $19.3 million. The decrease in per Boe expense for 2011 over 2010 was primarily due to increased production, offset in part by a 50% increase in absolute G&A costs due in part to increased staffing across the Company and a full year effect from additional employees from the Marbob acquisition. The Company's 2011 cash flow from operating activities (GAAP) was $1,199.5 million, as compared to $651.6 million, an increase of 84%. Adjusted cash flows (non-GAAP), which are cash flows from operating activities (GAAP) adjusted for settlements paid on derivatives not designated as hedges, was $1,114.6 million for 2011, as compared to $637.8 million for 2010, an increase of 75%. For a description of the use of adjusted cash flows (non-GAAP) and for a reconciliation of cash flows from operating activities (GAAP) to adjusted cash flows (non-GAAP), please see “Supplemental Non-GAAP Financial Measures” below. In 2011, the Company made net cash payments on derivatives not designated as hedges of $84.9 million and the non-cash unrealized mark-to-market gain on derivatives not designated as hedges was $61.5 million. This is compared to net cash payments of $13.8 million on derivatives not designated as hedges and a $73.5 million non-cash unrealized mark-to-market loss on derivatives not designated as hedges in 2010. To better understand the impact of the Company's derivative positions and their impact on the statements of operations, please see the “Summary Production and Operating Data” and “Derivatives Information” tables at the end of this press release.Operations During 2011, the Company commenced the drilling of or participated in a total of 810 gross wells (708 operated), 681 of which had been completed as producers, all of which were successful, and 124 of which were in progress at December 31, 2011. In addition, during 2011, the Company completed 153 wells that were drilled prior to 2011. Currently, the Company is operating 31 drilling rigs in the Permian Basin; 9 of these rigs are drilling Yeso wells in the New Mexico Shelf, 14 are drilling Wolfberry wells in the Texas Permian, 7 are drilling in the Delaware Basin targeting the Bone Spring play, which includes the Avalon shale, the Bone Spring sands and the Wolfcamp shale, and 1 rig is drilling Lower Abo wells in the New Mexico Shelf. New Mexico Shelf During the fourth quarter of 2011, the Company drilled 92 wells (86 operated) on its New Mexico Shelf assets, which included both Yeso and Lower Abo wells, with a 100% success rate on the 44 wells that had been completed by December 31, 2011. In addition, during the fourth quarter of 2011, the Company completed 66 wells that were drilled prior to the fourth quarter of 2011. During 2011, the Company drilled 443 wells (385 operated) on the New Mexico Shelf. Texas Permian During the fourth quarter of 2011, the Company drilled 64 wells (61 operated) on its Texas Permian assets with a 100% success rate on the 18 wells that had been completed by December 31, 2011. In addition, during the fourth quarter of 2011, the Company completed 66 wells that were drilled prior to the fourth quarter of 2011. During 2011, the Company drilled 272 wells (266 operated) in the Texas Permian. Delaware Basin During the fourth quarter of 2011, the Company drilled 15 wells (12 operated) on its Delaware Basin assets with a 100% success rate on the 3 wells that had been completed by December 31, 2011. In addition, during the fourth quarter of 2011, the Company completed 22 wells that were drilled prior to the fourth quarter of 2011. During 2011, the Company drilled 87 wells (57 operated) in the Delaware Basin. The Company's net production in the fourth quarter of 2011 from the Bone Spring play averaged approximately 11,400 Boepd, an increase of 28% over the third quarter of 2011 and a 250% increase over the fourth quarter of 2010. Liquidity At December 31, 2011, the Company's total debt balance was approximately $2.1 billion, of which $583.5 million was indebtedness outstanding under the Company's credit facility. The Company's total commitments under its credit facility are $2.0 billion, leaving approximately $1.4 billion available to be borrowed at December 31, 2011. 2012 Guidance Update The Company's 2012 production guidance range is 27.5 to 28.5 MMBoe. In the Company's current forecast, oil comprises 60% - 63% of its total production, in line with 2011 levels, and during 2011, over 90% of the Company's total revenue was derived from the sale of oil and natural gas liquids. The Company currently estimates that its 2012 direct lease operating expense will average $6.80 - $7.20 per Boe as compared to its previous guidance for the year of $6.40 - $6.80 per Boe. Additionally, the Company estimates that its 2012 DD&A expense will average $18.00 - $20.00 per Boe as compared to its previous guidance for the year of $18.00 - $19.00 per Boe. Derivative Update The Company maintains an active hedging program and continues to add to its derivative positions. Please see the “Derivatives Information” tableat the end of this press release for more detailed information about the Company's current derivative positions.Conference Call Information The Company will host a conference call on Thursday, February 23, 2012 at 9:00 a.m. Central Time to discuss the fourth quarter and full year 2011 financial and operating results. Interested parties may listen to the conference call via the Company's website at www.concho.com or by dialing (866) 713-8563 (passcode: 12630565). A replay of the conference call will be available on the Company's website or by dialing (888) 286-8010 (passcode: 80842393). About 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 focused in the Permian Basin of Southeast New Mexico and West Texas. For more information, visit Concho's website at www.concho.com. Forward-Looking Statements and Cautionary StatementsThe 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 facts, 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. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include statements, estimates and projections regarding the Company's future financial position, liquidity and capital resources, operations, performance, production growth, acquisitions, returns, capital expenditure budgets, oil and natural gas reserves, number of identified drilling locations, drilling program, derivative activities, costs and other guidance included in this press release. These statements are based on certain assumptions 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 Form 10-K and 10-Q filings and risks relating to declines in the prices we receive for our oil and natural gas; uncertainties about the estimated quantities of reserves; risks related to the integration of acquired assets; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing; drilling and operating risks; the adequacy of our capital resources and liquidity; risks related to the concentration of our operations in the Permian Basin; the results of our hedging program; weather; litigation; shortages of oilfield equipment, services and qualified personnel and increases in costs for such equipment, services and personnel; uncertainties about our ability to replace reserves and economically develop our current reserves; competition in the oil and natural gas industry; our existing indebtedness; 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.Concho Resources Inc.Consolidated Balance SheetsUnaudited               December 31,(in thousands, except share and per share data)   2011   2010Assets Current assets: Cash and cash equivalents $ 342 $ 384 Accounts receivable, net of allowance for doubtful accounts: Oil and natural gas 213,921 136,471 Joint operations and other 153,746 131,966 Related parties - 115 Derivative instruments 1,698 6,855 Deferred income taxes 28,793 42,716 Prepaid costs and other   12,523     12,126   Total current assets   411,023     330,633   Property and equipment: Oil and natural gas properties, successful efforts method 7,347,460 5,616,249 Accumulated depletion and depreciation   (1,116,545 )   (730,509 ) Total oil and natural gas properties, net 6,230,915 4,885,740 Other property and equipment, net   59,203     28,047   Total property and equipment, net   6,290,118     4,913,787   Funds held in escrow 17,394 - Deferred loan costs, net 65,641 52,828 Intangible asset - operating rights, net 33,425 34,973 Inventory 19,419 28,342 Noncurrent derivative instruments 7,944 2,233 Other assets   4,612     5,698   Total assets $ 6,849,576   $ 5,368,494   Liabilities and Stockholders' Equity Current liabilities: Accounts payable: Trade $ 23,198 $ 39,951 Related parties 154 1,189 Bank overdrafts 39,241 12,314 Revenue payable 146,061 57,406 Accrued and prepaid drilling costs 293,919 215,079 Derivative instruments 56,218 97,775 Other current liabilities   142,686     83,275   Total current liabilities   701,477     506,989   Long-term debt 2,080,141 1,668,521 Deferred income taxes 1,002,295 720,889 Noncurrent derivative instruments 32,254 51,647 Asset retirement obligations and other long-term liabilities 52,670 36,574 Stockholders' equity: Common stock, $0.001 par value; 300,000,000 authorized; 103,756,222 and 102,842,082 shares issued at December 31, 2011 and 2010, respectively 104 103 Additional paid-in capital 1,925,757 1,874,649 Retained earnings 1,058,874 510,737 Treasury stock, at cost; 55,990 and 31,963 shares at December 31, 2011 and 2010, respectively   (3,996 )   (1,615 ) Total stockholders' equity   2,980,739     2,383,874   Total liabilities and stockholders' equity $ 6,849,576   $ 5,368,494                         Concho Resources Inc.Consolidated Statements of OperationsUnaudited                           Three Months EndedYears EndedDecember 31,December 31,(in thousands, except per share data)   2011   2010   2011   2010   Operating revenues: Oil sales $ 372,768 $ 245,652 $ 1,330,601 $ 735,333 Natural gas sales   105,659     70,336     409,366     204,934   Total operating revenues   478,427     315,988     1,739,967     940,267   Operating costs and expenses: Oil and natural gas production 90,726 54,875 308,011 166,409 Exploration and abandonments 7,155 4,676 11,779 10,324 Depreciation, depletion and amortization 123,478 84,248 428,377 241,642 Accretion of discount on asset retirement obligations 795 476 2,965 1,482 Impairments of long-lived assets 363 5,947 439 11,614 General and administrative (including non-cash stock-based compensation of $5,405 and $4,077 for the three months ended December 31, 2011 and 2010, respectively, and $19,271 and $12,931 for the years ended December 31, 2011 and 2010, respectively) 29,378 17,451 96,261 64,275 Bad debt expense - 292 - 870 Loss on derivatives not designated as hedges   320,312     149,554     23,350     87,325   Total operating costs and expenses   572,207     317,519     871,182     583,941   Income (loss) from operations   (93,780 )   (1,531 )   868,785     356,326   Other income (expense): Interest expense (34,159 ) (25,794 ) (118,360 ) (60,087 ) Other, net   616     (6,415 )   (3,974 )   (10,313 ) Total other expense   (33,543 )   (32,209 )   (122,334 )   (70,400 ) Income (loss) from continuing operations before income taxes (127,323 ) (33,740 ) 746,451 285,926 Income tax benefit (expense)   48,152     3,097     (285,848 )   (115,278 ) Income (loss) from continuing operations (79,171 ) (30,643 ) 460,603 170,648 Income (loss) from discontinued operations, net of tax   (3,654 )   22,527     87,534     33,722   Net income (loss) $ (82,825 ) $ (8,116 ) $ 548,137   $ 204,370   Basic earnings per share: Income (loss) from continuing operations $ (0.77 ) $ (0.31 ) $ 4.49 $ 1.84 Income (loss) from discontinued operations, net of tax   (0.04 )   0.23     0.85     0.37   Net income (loss) $ (0.81 ) $ (0.08 ) $ 5.34   $ 2.21   Weighted average shares used in basic earnings per share   102,771     99,014     102,581     92,542   Diluted earnings per share: Income (loss) from continuing operations $ (0.77 ) $ (0.31 ) $ 4.44 $ 1.82 Income (loss) from discontinued operations, net of tax   (0.04 )   0.23     0.84     0.36   Net income (loss) $ (0.81 ) $ (0.08 ) $ 5.28   $ 2.18   Weighted average shares used in diluted earnings per share   102,771     99,014     103,653     93,837                                         Concho Resources Inc.Consolidated Statements of Cash FlowsUnaudited               Years EndedDecember 31,(in thousands)   2011   2010   CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 548,137 $ 204,370 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 428,377 241,642 Accretion of discount on asset retirement obligations 2,965 1,482 Impairments of long-lived assets 439 11,614 Exploration and abandonments, including dry holes 6,802 7,612 Non-cash compensation expense 19,271 12,931 Bad debt expense - 870 Deferred income taxes 261,686 100,337 Loss on sale of assets, net 1,139 58 Loss on derivatives not designated as hedges 23,350 87,325 Discontinued operations (76,148 ) 5,665 Other non-cash items 3,075 6,837 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (117,561 ) (92,957 ) Prepaid costs and other (1,730 ) 3,255 Inventory 7,749 (2,321 ) Accounts payable (25,381 ) 24,373 Revenue payable 84,850 26,337 Other current liabilities   32,438     12,152   Net cash provided by operating activities   1,199,458     651,582   CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures on oil and natural gas properties (1,707,939 ) (2,127,047 ) Additions to other property and equipment (37,651 ) (6,935 ) Proceeds from the sale of assets 196,420 104,349 Funds held in escrow (17,394 ) - Settlements paid on derivatives not designated as hedges   (84,854 )   (13,824 ) Net cash used in investing activities   (1,651,418 )   (2,043,457 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt 2,809,300 2,946,748 Payments of debt (2,389,300 ) (2,283,248 ) Exercise of stock options 7,801 5,778 Excess tax benefit from stock-based compensation 24,037 11,346 Net proceeds from issuance of common stock - 739,446 Payments for loan origination costs (24,466 ) (38,746 ) Purchase of treasury stock (2,381 ) (1,198 ) Bank overdrafts   26,927     8,899   Net cash provided by financing activities   451,918     1,389,025   Net decrease in cash and cash equivalents (42 ) (2,850 ) Cash and cash equivalents at beginning of period   384     3,234   Cash and cash equivalents at end of period $ 342   $ 384   SUPPLEMENTAL CASH FLOWS: Cash paid for interest and fees, net of $73 and $184 capitalized interest $ 77,921 $ 48,052 Cash paid for income taxes $ 22,768 $ 19,885 NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for a business combination $ - $ 75,773 Issuance of debt for a business combination $ - $ 159,000                       Concho Resources Inc.Summary Production and Operating DataUnaudited           The following table sets forth summary information from our continuing and discontinued operations concerning our production and operating data for the periods indicated:                         Three Months EndedYears EndedDecember 31,December 31,         2011   2010   2011   2010   Production and operating data:Net production volumes: Oil (MBbl) 4,074 3,167 14,692 10,330 Natural gas (MMcf) 14,748 11,012 53,714 31,405 Total (MBoe) 6,532 5,002 23,644 15,564   Average daily production volumes: Oil (Bbl) 44,283 34,424 40,252 28,301 Natural gas (Mcf) 160,304 119,696 147,162 86,041 Total (Boe) 71,000 54,373 64,779 42,641   Average prices: Oil, without derivatives (Bbl) $ 91.50 $ 81.31 $ 91.21 $ 76.05 Oil, with derivatives (Bbl) (a) $ 87.75 $ 76.78 $ 84.13 $ 73.51 Natural gas, without derivatives (Mcf) $ 7.16 $ 6.58 $ 7.62 $ 6.77 Natural gas, with derivatives (Mcf) (a) $ 7.73 $ 7.22 $ 8.10 $ 7.32 Total, without derivatives (Boe) $ 73.24 $ 65.96 $ 73.99 $ 64.13 Total, with derivatives (Boe) (a) $ 72.17 $ 64.50 $ 70.68 $ 63.56   Operating costs and expenses per Boe: Lease operating expenses and workover costs $ 8.03 $ 6.23 $ 7.07 $ 6.12 Oil and natural gas taxes $ 5.86 $ 5.47 $ 6.03 $ 5.49 General and administrative $ 4.50 $ 3.43 $ 4.07 $ 4.07 Depreciation, depletion and amortization $ 18.90 $ 17.49 $ 18.21 $ 16.53                       (a) Includes the effect of  cash settlements received from (paid on) commodity derivatives not designated as hedges and reported in operating costs and expenses. The following table reflects the amounts of cash settlements received from (paid on) commodity derivatives not designated as hedges that were included in computing average prices with derivatives and reconciles to the amount in loss on derivatives not designated as hedges as reported in the statements of operations:                       Three Months EndedYears EndedDecember 31,December 31,(in thousands)   2011   2010   2011   2010   Loss on derivatives not designated as hedges: Cash payments on oil derivatives $ (15,290 ) $ (14,330 ) $ (103,969 ) $ (26,281 ) Cash receipts from natural gas derivatives 8,271 7,036 25,739 17,414 Cash payments on interest rate derivatives - (1,299 ) (6,624 ) (4,957 ) Unrealized mark-to-market gain (loss) on commodity and interest rate derivatives   (313,293 )   (140,961 )   61,504     (73,501 ) Loss on derivatives not designated as hedges $ (320,312 ) $ (149,554 ) $ (23,350 ) $ (87,325 )   The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash (payments on) receipts from commodity derivatives that are presented in loss on derivatives not designated as hedges in the statements of operations. This presentation of average prices with derivatives is a means by which to reflect the actual cash performance of our 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.     The following table sets forth summary information from our continuing operations concerning production and operating data for the periods indicated:                                 Three Months EndedYears EndedDecember 31,December 31,         2011   2010   2011   2010   Production and operating data:Net production volumes: Oil (MBbl) 4,074 3,008 14,575 9,621 Natural gas (MMcf) 14,748 10,606 53,677 29,687 Total (MBoe) 6,532 4,776 23,521 14,569   Average daily production volumes: Oil (Bbl) 44,283 32,696 39,932 26,359 Natural gas (Mcf) 160,304 115,283 147,060 81,334 Total (Boe) 71,000 51,910 64,442 39,915   Average prices: Oil, without derivatives (Bbl) $ 91.50 $ 81.67 $ 91.29 $ 76.43 Oil, with derivatives (Bbl) (a) $ 87.75 $ 76.90 $ 84.16 $ 73.70 Natural gas, without derivatives (Mcf) $ 7.16 $ 6.63 $ 7.63 $ 6.90 Natural gas, with derivatives (Mcf) (a) $ 7.73 $ 7.30 $ 8.11 $ 7.49 Total, without derivatives (Boe) $ 73.24 $ 66.16 $ 73.98 $ 64.54 Total, with derivatives (Boe) (a) $ 72.17 $ 64.63 $ 70.65 $ 63.93   Operating costs and expenses per Boe: Lease operating expenses and workover costs $ 8.03 $ 6.07 $ 7.08 $ 5.94 Oil and natural gas taxes $ 5.86 $ 5.42 $ 6.02 $ 5.48 General and administrative $ 4.50 $ 3.65 $ 4.09 $ 4.41 Depreciation, depletion and amortization $ 18.90 $ 17.64 $ 18.21 $ 16.59                       (a) Includes the effect of  cash settlements received from (paid on) commodity derivatives not designated as hedges and reported in operating costs and expenses. The following table reflects the amounts of cash settlements received from (paid on) commodity derivatives not designated as hedges that were included in computing average prices with derivatives and reconciles to the amount in loss on derivatives not designated as hedges as reported in the statements of operations:                       Three Months EndedYears EndedDecember 31,December 31,(in thousands)   2011   2010   2011   2010   Loss on derivatives not designated as hedges: Cash payments on oil derivatives $ (15,290 ) $ (14,330 ) $ (103,969 ) $ (26,281 ) Cash receipts from natural gas derivatives 8,271 7,036 25,739 17,414 Cash payments on interest rate derivatives - (1,299 ) (6,624 ) (4,957 ) Unrealized mark-to-market gain (loss) on commodity and interest rated erivatives   (313,293 )   (140,961 )   61,504     (73,501 ) Loss on derivatives not designated as hedges $ (320,312 ) $ (149,554 ) $ (23,350 ) $ (87,325 )                       The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash (payments on) receipts from commodity derivatives that are presented in loss on derivatives not designated as hedges in the statements of operations. This presentation of average prices with derivatives is a means by which to reflect the actual cash performance of our 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.Supplemental Non-GAAP Financial MeasuresUnauditedEBITDAX EBITDAX (as defined below) is presented herein, and reconciled from the generally accepted accounting principles ("GAAP") measure of net income because of its wide acceptance by the investment community as a financial indicator of a company's ability to internally fund exploration and development activities. We define EBITDAX as net income (loss), plus (1) exploration and abandonments expense, (2) depreciation, depletion and amortization expense, (3) accretion expense, (4) impairments of long-lived assets, (5) non-cash stock-based compensation expense, (6) bad debt expense, (7) unrealized (gain) loss on derivatives not designated as hedges, (8) (gain) loss on sale of assets, net, (9) interest expense, (10) federal and state income taxes on continuing operations, and (11) similar items listed above that are presented in discontinued operations. EBITDAX is not a measure of net income or cash flows as determined by GAAP. Our EBITDAX measure (which includes continuing and discontinued operations) provides additional information which may be used to better understand our operations. EBITDAX is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net income, as an indicator of our operating performance. Certain items excluded from 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 assets, none of which are components of EBITDAX. EBITDAX, as used by us, may not be comparable to similarly titled measures reported by other companies. We believe that EBITDAX is a widely followed measure of operating performance and is one of many metrics used by our management team, and by other users, of our consolidated financial statements. For example, EBITDAX can be used to assess our 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 our assets and our company without regard to capital structure or historical cost basis. The following table provides a reconciliation of net income (loss) to EBITDAX:             Three Months Ended   Years EndedDecember 31,December 31,(in thousands)   2011   2010   2011   2010     Net income (loss) $ (82,825 ) $ (8,116 ) $ 548,137 $ 204,370 Exploration and abandonments 7,155 4,676 11,779 10,324 Depreciation, depletion and amortization 123,478 84,248 428,377 241,642 Accretion of discount on asset retirement obligations 795 476 2,965 1,482 Impairments of long-lived assets 363 5,947 439 11,614 Non-cash stock-based compensation 5,405 4,077 19,271 12,931 Bad debt expense - 292 - 870 Unrealized (gain) loss on derivatives not designated as hedges 313,293 140,961 (61,504 ) 73,501 (Gain) loss on sale of assets, net (1,990 ) 34 1,139 58 Interest expense 34,159 25,794 118,360 60,087 Income tax expense (benefit) on continuing operations (48,152 ) (3,097 ) 285,848 115,278 Discontinued operations   3,654     (11,892 )   (79,652 )   10,837 EBITDAX $ 355,335   $ 243,400   $ 1,275,159   $ 742,994                                     Adjusted Net Income The following tables provide information that the Company believes may be useful to investors who follow the practice of some industry analysts who adjust reported company earnings and cash flows from operating activities to make other adjustments to exclude certain non-cash items and match realizations to production settlement months. The following table provides a reconciliation of net income (loss) (GAAP) to adjusted net income (non-GAAP).                               Three Months EndedYears EndedDecember 31,December 31,(in thousands, except per share data)   2011   2010   2011   2010   Net income (loss) - as reported $ (82,825 ) $ (8,116 ) $ 548,137 $ 204,370   Adjustments for certain non-cash items: Unrealized mark-to-market (gain) loss on commodity and interest rate derivatives 313,293 140,961 (61,504 ) 73,501 Impairments of long-lived assets 363 5,947 439 11,614 Leasehold abandonments 4,940 3,672 5,735 7,575 Discontinued operations: Impairments of long-lived assets - - - 3,567 (Gain) loss on sale of assets 6,007 (29,112 ) (135,943 ) (29,112 ) Tax impact (a) (122,700 ) (46,401 ) 73,258 (25,649 ) Change in state statutory effective income tax rate   -     8,278     -     8,278   Adjusted net income $ 119,078   $ 75,229   $ 430,122   $ 254,144     Adjusted basic earnings per share: Adjusted net income per share $ 1.16 $ 0.76 $ 4.19 $ 2.75 Weighted average shares used in adjusted basic earnings per share 102,771 99,014 102,581 92,542   Adjusted diluted earnings per share: Adjusted net income per share $ 1.15 $ 0.75 $ 4.15 $ 2.71 Weighted average shares used in adjusted diluted earnings per share 103,770 100,386 103,653 93,837                   (a) The tax impact is computed utilizing the Company's statutory effective federal and state income tax rates excluding the effects of permanent rate differences. The income tax rates for the three months ended December 31, 2011 and 2010, were 37.8% and 38.2%, respectively, and 38.3% and 38.2% for the years ended December 31, 2011 and 2010, respectively.     Adjusted Cash Flows The following table provides a reconciliation of cash flows from operating activities (GAAP) to adjusted cash flows (non-GAAP).               Years Ended December 31,(in thousands)   2011   2010   Cash flows from operating activities $ 1,199,458 $ 651,582 Settlements paid on derivatives not designated as hedges (a)   (84,854 )   (13,824 ) Cash flows from operating activities adjusted for settlements paid on derivatives not designated as hedges $ 1,114,604   $ 637,758             (a) Amounts are presented in cash flows from investing activities for GAAP purposes.     Concho Resources Inc.Costs IncurredUnaudited The table below provides the costs incurred for the three months and years ended December 31, 2011 and 2010.               Costs incurred for oil and natural gas producing activities (a)                                 Three Months EndedYears EndedDecember 31,December 31,(in thousands)       2011   2010   2011   2010   Property acquisition costs: Proved $ 94,510 $ 1,206,877 $ 163,658 $ 1,224,378 Unproved 243,549 443,785 361,321 475,688 Exploration 152,590 64,124 562,679 200,797 Development   176,934   158,400   744,481   492,622 Total costs incurred for oil and natural gas properties $ 667,583 $ 1,873,186 $ 1,832,139 $ 2,393,485                                   (a) The costs incurred for oil and natural gas producing activities includes the following amounts of asset retirement obligations:                             Three Months EndedYears EndedDecember 31,December 31,(in thousands)     2011   2010   2011   2010   Proved property acquisition costs $ 379 $ 8,290 $ 527 $ 8,290 Exploration costs 1,346 211 2,184 784 Development costs   9,730   14,838   11,824   13,611 Total $ 11,455 $ 23,339 $ 14,535 $ 22,685                                 Concho Resources Inc.Derivatives InformationUnaudited The table below provides data associated with the Company's derivatives at February 22, 2012.                                                               2012FirstSecondThirdFourthQuarterQuarterQuarterQuarterTotal2013201420152016   Oil Swaps: Volume (Bbl) 3,662,500 3,539,500 3,193,500 2,941,500 13,337,000 10,055,000 2,707,000 692,000 81,000 NYMEX price (Bbl) (a) $ 94.30 $ 94.27 $ 95.16 $ 95.07 $ 94.67 $ 95.12 $ 89.99 $ 85.24 $ 89.65   Natural Gas Swaps: Volume (MMBtu) 75,000 75,000 75,000 75,000 300,000 - - - - NYMEX price (MMBtu) (b) $ 6.54 $ 6.54 $ 6.54 $ 6.54 $ 6.54 - - - -                                             (a) The index prices for the oil contracts are based on the NYMEX-West Texas Intermediate monthly average futures price. (b)   The index prices for the natural gas contracts are based on the NYMEX-Henry Hub last trading day of the month futures price. Concho Resources Inc.Toffee McAlister, 432-683-7443Director, Investor Relations & Corporate Communications