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Press release from Business Wire

Concho Resources Inc. Reports Fourth Quarter 2012 and Year End Financial and Operating Results

Wednesday, February 20, 2013

Concho Resources Inc. Reports Fourth Quarter 2012 and Year End Financial and Operating Results17:00 EST Wednesday, February 20, 2013 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, 2012. Highlights for the year ended December 31, 2012 include: Production of 29.8 million barrels of oil equivalent (“MMBoe”) for 2012, a 26% increase over 2011 Net income of $431.7 million, or $4.15 per diluted share, for 2012, as compared to net income of $548.1 million, or $5.28 per diluted share, in 2011 Adjusted net income1 (non-GAAP) of $388.6 million, or $3.74 per diluted share, for 2012, as compared to $430.1 million, or $4.15 per diluted share, for 2011 EBITDAX2 (non-GAAP) of $1,475.6 million for 2012, a 16% increase over 2011 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 2012 Financial Results Production for 2012 totaled 29.8 MMBoe (18.0 million barrels of oil (“MMBbls”) and 70.6 billion cubic feet of natural gas (“Bcf”)), an increase of 26% as compared to 23.6 MMBoe (14.7 MMBbls and 53.7 Bcf) produced in 2011. Tim Leach, Concho's Chairman, CEO and President, commented, “In 2012, Concho was able to execute our $1.5 billion capital program and grow production in excess of 20% organically. In addition, we positioned the Company for future growth in emerging areas such as the Delaware Basin through the acquisition of Three Rivers and internally identified drilling locations. Today, our opportunity set is deeper than at any time in the Company's history and we look forward to executing on our inventory of high rate of return projects.” For 2012, the Company reported net income of $431.7 million, or $4.15 per diluted share, as compared to net income of $548.1 million, or $5.28 per diluted share, for 2011. The Company's 2012 results were impacted by several non-cash items including: (1) a $103.9 million unrealized mark-to-market gain on commodity derivatives, (2) $12.4 million of leasehold abandonments, (3) $3.2 million of other settlements and (4) an $18.7 million loss related to the sale of non-core assets included in discontinued operations. Excluding these items and their tax effects, the 2012 adjusted net income (non-GAAP) was $388.6 million, or $3.74 per diluted share. Excluding similar non-cash items and their tax impact, adjusted net income (non-GAAP) for 2011 was $430.1 million, or $4.15 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 was $1,475.6 million in 2012, an increase of 16% from $1,275.2 million in 2011. For a description and 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 2012 increased 12% when compared to 2011. This increase was attributable to a 27% increase in production from continuing operations in 2012 compared to 2011, which was partially offset by a 34% decrease in the Company's unhedged realized natural gas price and a 4% decrease in the Company's unhedged realized oil price. Oil and natural gas production expense from continuing operations for 2012, including oil and natural gas taxes, totaled $343.7 million, or $12.29 per barrel of oil equivalent (“Boe”), a 3% decrease per Boe from 2011. This decrease was due primarily to lower oil and natural gas taxes, which averaged $5.39 per Boe in 2012 as compared to $5.96 per Boe in 2011. The decrease in oil and natural gas taxes per Boe over 2011 was primarily due to lower realized oil and natural gas prices. Depreciation, depletion and amortization expense (“DD&A”) from continuing operations for 2012 totaled $575.1 million, or $20.56 per Boe, a 13% increase per Boe from 2011. General and administrative expense (“G&A”) from continuing operations for 2012 totaled $133.8 million, or $4.79 per Boe, as compared to $98.5 million, or $4.48 per Boe, in 2011. Cash G&A for 2012 totaled $103.9 million and stock-based compensation (non-cash) totaled $29.9 million. The increase in per Boe expense for 2012 over 2011 was primarily due to a 36% increase in absolute G&A expenses reflecting increased staffing across the Company, and was partially offset by a 27% increase in production from continuing operations. The Company's cash flow from operating activities (GAAP) was $1,237.5 million for 2012, as compared to $1,199.5 million for 2011, an increase of 3%. Adjusted cash flows (non-GAAP), which are cash flows from operating activities (GAAP) adjusted for settlements on derivatives not designated as hedges, were $1,261.0 million for 2012, as compared to $1,114.6 million for 2011, an increase of 13%. 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 2012, the Company collected net cash receipts on derivatives not designated as hedges of $23.5 million and the non-cash unrealized mark-to-market gain on derivatives not designated as hedges was $103.9 million. In comparison, the Company made net cash payments of $84.9 million on derivatives not designated as hedges and reported a $61.5 million non-cash unrealized mark-to-market gain on derivatives not designated as hedges in 2011. 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 For 2012, the Company commenced drilling or participated in a total of 840 gross wells (657 operated), 5 of which were plugged and abandoned, and completed 798 wells as producers. The table below summarizes the Company's gross drilling activities by core area for the fourth quarter and full year 2012:     Total Wells1     Operated Wells     Completed Wells 4Q 2012   FY 2012 4Q 2012   FY 2012 4Q 2012   FY 2012 New Mexico Shelf 73 360 29 251 85 348 Delaware Basin 45 154 29 87 47 134 Texas Permian 78 326 77 319 78 316 Total1968401356572107981 Includes 5 wells that were plugged and abandoned in 2012. Currently, the Company is operating 31 drilling rigs; 5 of these rigs are drilling Yeso wells in the New Mexico Shelf, 14 are drilling in the Texas Permian and 12 are drilling in the Delaware Basin. Of the 31 operated rigs, the Company is currently running 16 horizontal drilling rigs, including 12 in the Delaware Basin, 1 in the Texas Permian and 3 in the New Mexico Shelf. New Mexico Shelf At year-end 2012, the Company had identified 2,083 locations on the New Mexico Shelf, with proved reserves attributed to 616 of such locations. Of these 2,083 drilling locations, 1,044 locations target the Yeso formation vertically and 676 locations targeting the Yeso formation horizontally. Delaware Basin At year-end 2012, the Company had identified 4,212 drilling locations in the northern Delaware Basin, an increase of over 2,300 drilling locations since year-end 2011, with proved reserves attributed to 246 of such locations. These locations include 2,462 targeting the Bone Spring sands, 1,016 targeting the Avalon shale and 734 targeting other formations. Concho has not included any potential drilling locations across its approximately 147,000 gross (128,000 net) acres in the southern Delaware Basin. The Company's net production in the fourth quarter of 2012 from horizontal Delaware Basin wells averaged approximately 21,100 barrels of oil equivalent per day (“Boepd”) an increase of 92% over the fourth quarter of 2011 and an increase of 32% over the third quarter of 2012. Texas Permian At year-end 2012, the Company had identified 5,974 drilling locations, with proved reserves associated with 1,464 of such locations. Of these 5,974 drilling locations, 1,955 target the Wolfberry play on 40-acre spacing, 2,486 target the Wolfberry play on 20-acre spacing, 1,410 target the shallow Wolfcamp vertically and the remaining drilling locations target other objectives. Derivative Update The Company maintains an active hedging program and has added to its derivative positions. In addition to the incremental crude oil swaps, Concho has added basis swaps that limit the Company's exposure to the Midland-to-Cushing differential. Concho has hedged 9.0 MMBbls of the basis differential at an average price of ($1.23) per Bbl from April 2013 to December 2013. Please see the “Derivatives Information” table at the end of this press release for more detailed information about the Company's current derivative positions.Credit Facility At December 31, 2012, the Company had borrowings outstanding under its credit facility of $304.0 million, and the availability under the credit facility was approximately $2.2 billion. Conference Call Information The Company will host a conference call on Thursday, February 21, 2013 at 9:00 a.m. Central Time to discuss the fourth quarter 2012 and year-end 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) 271-5140 (passcode: 10112096). A replay of the conference call will be available on the Company's website or by dialing (888) 286-8010 (passcode: 61682005). 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, operations, performance, production growth, returns, divestitures, capital expenditure budget, the proceeds of the sale of the non-core properties, oil and natural gas reserves, number of identified drilling locations, drilling program, derivative activities, costs and other guidance. 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; 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 amounts)       2012         2011   Assets Current assets:     Cash and cash equivalents $ 2,880 $ 342 Accounts receivable, net of allowance for doubtful accounts: Oil and natural gas 198,053 213,921 Joint operations and other 202,738 153,746 Derivative instruments 35,942 1,698 Deferred income taxes - 28,793 Prepaid costs and other   19,269     12,523   Total current assets   458,882     411,023   Property and equipment: Oil and natural gas properties, successful efforts method 9,455,599 7,347,460 Accumulated depletion and depreciation   (1,565,316 )   (1,116,545 ) Total oil and natural gas properties, net 7,890,283 6,230,915 Other property and equipment, net   103,141     59,203   Total property and equipment, net   7,993,424     6,290,118   Funds held in escrow - 17,394 Deferred loan costs, net 77,609 65,641 Intangible asset - operating rights, net 30,076 33,425 Inventory 20,611 19,419 Noncurrent derivative instruments 2,769 7,944 Other assets   6,066     4,612   Total assets $ 8,589,437   $ 6,849,576   Liabilities and Stockholders' Equity Current liabilities: Accounts payable: Trade $ 31,144 $ 23,198 Related parties 185 154 Bank overdrafts 24,275 39,241 Revenue payable 162,073 146,061 Accrued and prepaid drilling costs 351,919 293,919 Derivative instruments 1,584 56,218 Deferred income taxes 8,566 - Other current liabilities   160,340     142,686   Total current liabilities   740,086     701,477   Long-term debt 3,101,103 2,080,141 Deferred income taxes 1,186,621 1,002,295 Noncurrent derivative instruments 12,049 32,254 Asset retirement obligations and other long-term liabilities 83,382 52,670 Commitments and contingencies Stockholders' equity: Common stock, $0.001 par value; 300,000,000 authorized; 104,668,427 and 103,756,222 shares issued at December 31, 2012 and 2011, respectively 105 104 Additional paid-in capital 1,982,714 1,925,757 Retained earnings 1,490,563 1,058,874 Treasury stock, at cost; 86,861 and 55,990 shares at December 31, 2012 and 2011, respectively   (7,186 )   (3,996 ) Total stockholders' equity   3,466,196     2,980,739   Total liabilities and stockholders' equity $ 8,589,437   $ 6,849,576       Concho Resources Inc.Consolidated Statements of OperationsUnaudited                                           Three Months EndedYears EndedDecember 31,December 31,(in thousands, except per share amounts)     2012     2011 (a)     2012     2011 (a)   Operating revenues: Oil sales $ 383,494 $ 344,005 $ 1,482,998 $ 1,228,167 Natural gas sales   94,032     100,337     336,816     389,604   Total operating revenues   477,526     444,342     1,819,814     1,617,771   Operating costs and expenses: Oil and natural gas production 92,102 82,148 343,743 277,929 Exploration and abandonments 12,505 6,770 39,840 11,394 Depreciation, depletion and amortization 166,453 115,249 575,128 400,022 Accretion of discount on asset retirement obligations 1,361 669 4,187 2,444 Impairments of long-lived assets - 363 - 439 General and administrative (including non-cash stock-based compensation of $8,438 and $5,405 for the three months ended December 31, 2012 and 2011, respectively, and $29,872 and $19,271 for the years ended December 31, 2012 and 2011, respectively) 37,802 29,960 133,796 98,525 (Gain) loss on derivatives not designated as hedges   (17,901 )   320,312     (127,443 )   23,350   Total operating costs and expenses   292,322     555,471     969,251     814,103   Income (loss) from operations   185,204     (111,129 )   850,563     803,668   Other income (expense): Interest expense (53,632 ) (34,159 ) (182,705 ) (118,360 ) Other, net   (3,670 )   616     (8,587 )   (3,974 ) Total other expense   (57,302 )   (33,543 )   (191,292 )   (122,334 ) Income (loss) from continuing operations before income taxes 127,902 (144,672 ) 659,271 681,334 Income tax (expense) benefit   (46,714 )   54,559     (251,041 )   (261,800 ) Income (loss) from continuing operations 81,188 (90,113 ) 408,230 419,534 Income (loss) from discontinued operations, net of tax   (5,901 )   7,288     23,459     128,603   Net income (loss) $ 75,287   $ (82,825 ) $ 431,689   $ 548,137   Basic earnings per share: Income (loss) from continuing operations $ 0.78 $ (0.88 ) $ 3.96 $ 4.09 Income (loss) from discontinued operations, net of tax   (0.05 )   0.07     0.22     1.25   Net income (loss) $ 0.73   $ (0.81 ) $ 4.18   $ 5.34   Weighted average shares used in basic earnings per share   103,494     102,771     103,190     102,581   Diluted earnings per share: Income (loss) from continuing operations $ 0.78 $ (0.88 ) $ 3.93 $ 4.05 Income (loss) from discontinued operations, net of tax   (0.06 )   0.07     0.22     1.23   Net income (loss) $ 0.72   $ (0.81 ) $ 4.15   $ 5.28   Weighted average shares used in diluted earnings per share   104,194     102,771     103,972     103,653                               (a) Retrospectively adjusted for presentation of discontinued operations.     Concho Resources Inc.Consolidated Statements of Cash FlowsUnaudited       Years Ended December 31,(in thousands)     2012     2011 (a)CASH FLOWS FROM OPERATING ACTIVITIES:     Net income $ 431,689 $ 548,137 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 575,128 400,022 Impairments of long-lived assets - 439 Accretion of discount on asset retirement obligations 4,187 2,444 Exploration and abandonments, including dry holes 19,913 6,417 Non-cash compensation expense 29,872 19,271 Deferred income taxes 241,819 249,883 Loss on sale of assets, net 372 1,139 (Gain) loss on derivatives not designated as hedges (127,443 ) 23,350 Discontinued operations 49,011 (35,084 ) Other non-cash items 12,420 3,075 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (23,091 ) (117,561 ) Prepaid costs and other (8,200 ) (1,730 ) Inventory (1,587 ) 7,749 Accounts payable 4,165 (25,381 ) Revenue payable 16,012 84,850 Other current liabilities   13,211     32,438   Net cash provided by operating activities   1,237,478     1,199,458   CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures on oil and natural gas properties (2,717,283 ) (1,707,939 ) Additions to other property and equipment (56,588 ) (37,651 ) Proceeds from the sale of assets 492,497 196,420 Funds held in escrow 17,394 (17,394 ) Settlements received from (paid on) derivatives not designated as hedges   23,536     (84,854 ) Net cash used in investing activities   (2,240,444 )   (1,651,418 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of debt 4,262,000 2,809,300 Payments of debt (3,241,500 ) (2,389,300 ) Exercise of stock options 8,123 7,801 Excess tax benefit from stock-based compensation 18,963 24,037 Payments for loan costs (23,926 ) (24,466 ) Purchase of treasury stock (3,190 ) (2,381 ) Bank overdrafts   (14,966 )   26,927   Net cash provided by financing activities   1,005,504     451,918   Net increase (decrease) in cash and cash equivalents 2,538 (42 ) Cash and cash equivalents at beginning of period   342     384   Cash and cash equivalents at end of period $ 2,880   $ 342   SUPPLEMENTAL CASH FLOWS: Cash paid for interest and fees, net of $73 capitalized interest in 2011 $ 158,715 $ 77,921 Cash paid for income taxes $ 19,674 $ 22,768                 (a) Retrospectively adjusted for presentation of discontinued operations.     Concho Resources Inc.Summary Production and Price 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,               2012     2011     2012     2011   Production and operating data:Net production volumes: Oil (MBbl) 4,950 4,074 18,003 14,692 Natural gas (MMcf) 19,621 14,748 70,591 53,714 Total (MBoe) 8,220 6,532 29,768 23,644   Average daily production volumes: Oil (Bbl) 53,804 44,283 49,189 40,252 Natural gas (Mcf) 213,272 160,304 192,872 147,162 Total (Boe) 89,350 71,000 81,334 64,779   Average prices: Oil, without derivatives (Bbl) $ 81.28 $ 91.50 $ 88.01 $ 91.21 Oil, with derivatives (Bbl) (a) $ 87.50 $ 87.75 $ 89.25 $ 84.13 Natural gas, without derivatives (Mcf) $ 5.06 $ 7.16 $ 5.03 $ 7.62 Natural gas, with derivatives (Mcf) (a) $ 5.07 $ 7.73 $ 5.05 $ 8.10 Total, without derivatives (Boe) $ 61.02 $ 73.24 $ 65.16 $ 73.99 Total, with derivatives (Boe) (a) $ 64.80 $ 72.17 $ 65.95 $ 70.68   Operating costs and expenses per Boe: Lease operating expenses and workover costs $ 7.17 $ 8.03 $ 7.27 $ 7.07 Oil and natural gas taxes $ 5.19 $ 5.86 $ 5.43 $ 6.03 Depreciation, depletion and amortization $ 20.73 $ 18.91 $ 20.34 $ 18.21 General and administrative $ 4.51 $ 4.50 $ 4.40 $ 4.07                                     (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 (gain) loss on derivatives not designated as hedges as reported in the statements of operations:                                 Three Months EndedYears EndedDecember 31,December 31,(in thousands)     2012     2011     2012     2011   Gain (loss) on derivatives not designated as hedges: Cash receipts from (payments on) oil derivatives $ 30,785 $ (15,290 ) $ 22,411 $ (103,969 ) Cash receipts from natural gas derivatives 236 8,271 1,125 25,739 Cash payments on interest rate derivatives - - - (6,624 ) Unrealized mark-to-market gain (loss) on commodity and interest rate derivatives   (13,120 )   (313,293 )   103,907   61,504   Gain (loss) on derivatives not designated as hedges $ 17,901   $ (320,312 ) $ 127,443 $ (23,350 )                                 The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash receipts from (payments on) commodity derivatives that are presented in gain (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,               2012     2011     2012     2011   Production and operating data:Net production volumes: Oil (MBbl) 4,718 3,754 16,859 13,446 Natural gas (MMcf) 18,462 14,041 66,613 51,118 Total (MBoe) 7,795 6,094 27,961 21,966   Average daily production volumes: Oil (Bbl) 51,283 40,804 46,063 36,838 Natural gas (Mcf) 200,674 152,620 182,003 140,049 Total (Boe) 84,728 66,241 76,397 60,180   Average prices: Oil, without derivatives (Bbl) $ 81.28 $ 91.64 $ 87.96 $ 91.34 Oil, with derivatives (Bbl) (a) $ 87.81 $ 87.56 $ 89.29 $ 83.61 Natural gas, without derivatives (Mcf) $ 5.09 $ 7.15 $ 5.06 $ 7.62 Natural gas, with derivatives (Mcf) (a) $ 5.11 $ 7.74 $ 5.07 $ 8.13 Total, without derivatives (Boe) $ 61.26 $ 72.91 $ 65.08 $ 73.65 Total, with derivatives (Boe) (a) $ 65.24 $ 71.76 $ 65.93 $ 70.09   Operating costs and expenses per Boe: Lease operating expenses and workover costs $ 6.64 $ 7.68 $ 6.90 $ 6.69 Oil and natural gas taxes $ 5.17 $ 5.80 $ 5.39 $ 5.96 Depreciation, depletion and amortization $ 21.35 $ 18.91 $ 20.56 $ 18.21 General and administrative $ 4.85 $ 4.92 $ 4.79 $ 4.48                                     (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 (gain) loss on derivatives not designated as hedges as reported in the statements of operations:                                 Three Months EndedYears EndedDecember 31,December 31,(in thousands)     2012     2011     2012     2011   Gain (loss) on derivatives not designated as hedges: Cash receipts from (payments on) oil derivatives $ 30,785 $ (15,290 ) $ 22,411 $ (103,969 ) Cash receipts from natural gas derivatives 236 8,271 1,125 25,739 Cash payments on interest rate derivatives - - - (6,624 ) Unrealized mark-to-market gain (loss) on commodity and interest rate derivatives   (13,120 )   (313,293 )   103,907   61,504   Gain (loss) on derivatives not designated as hedges $ 17,901   $ (320,312 ) $ 127,443 $ (23,350 )                                 The presentation of average prices with derivatives is a non-GAAP measure as a result of including the cash receipts from (payments on) commodity derivatives that are presented in gain (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 MeasuresUnaudited 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 net income and cash flows from operating activities to exclude certain non-cash items. Adjusted Net Income The following table provides a reconciliation of net income (GAAP) to adjusted net income (non-GAAP) for the periods indicated:                 Three Months EndedYears EndedDecember 31,December 31,(in thousands, except per share amounts)       2012         2011         2012         2011     Net income (loss) - as reported $ 75,287 $ (82,825 ) $ 431,689 $ 548,137   Adjustments for certain non-cash and unusual items: Unrealized (gain) loss on commodity and interest rate derivatives 13,120 313,293 (103,907 ) (61,504 ) Impairments of long-lived assets - 363 - 439 Leasehold abandonments 3,161 4,555 12,395 5,350 Other settlements 3,242 - 3,242 - Discontinued operations: Leasehold abandonments - 385 - 385 (Gain) loss on sale of assets 18,704 6,007 18,704 (135,943 ) Tax impact (a)   (13,953 )   (122,700 )   26,505     73,258   Adjusted net income $ 99,561   $ 119,078   $ 388,628   $ 430,122     Adjusted basic earnings per share: Adjusted net income per share $ 0.96 $ 1.16 $ 3.77 $ 4.19 Weighted average shares used in adjusted basic earnings per share 103,494 102,771 103,190 102,581   Adjusted diluted earnings per share: Adjusted net income per share $ 0.96 $ 1.15 $ 3.74 $ 4.15 Weighted average shares used in adjusted diluted earnings per share 104,194 103,770 103,972 103,653                               (a) The tax impact is computed utilizing the Company's adjusted statutory effective federal and state income tax rates. The income tax rates for the three months ended December 31, 2012 and 2011 were approximately 36.5% and 37.8%, respectively, and 38.1% and 38.3% for the years ended December 31, 2012 and 2011, respectively.     Adjusted Cash Flows The following table provides a reconciliation of cash flows from operating activities (GAAP) to adjusted cash flows (non-GAAP) for the periods indicated:         Years Ended December 31,(in thousands)       2012       2011     Cash flows from operating activities $ 1,237,478 $ 1,199,458 Settlements received from (paid on) derivatives not designated as hedges (a)   23,536   (84,854 ) Adjusted cash flows $ 1,261,014 $ 1,114,604                   (a) Amounts are presented in cash flows from investing activities for GAAP purposes.     EBITDAX 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, 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 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 to EBITDAX for the periods indicated:                 Three Months EndedYears EndedDecember 31,December 31,(in thousands)       2012       2011         2012         2011     Net income (loss) $ 75,287 $ (82,825 ) $ 431,689 $ 548,137 Exploration and abandonments 12,505 6,770 39,840 11,394 Depreciation, depletion and amortization 166,453 115,249 575,128 400,022 Accretion of discount on asset retirement obligations 1,361 669 4,187 2,444 Impairments of long-lived assets - 363 - 439 Non-cash stock-based compensation 8,438 5,405 29,872 19,271 Unrealized (gain) loss on derivatives not designated as hedges 13,120 313,293 (103,907 ) (61,504 ) (Gain) loss on sale of assets, net 87 (1,990 ) 372 1,139 Interest expense 53,632 34,159 182,705 118,360 Income tax expense (benefit) on continuing operations 46,714 (54,559 ) 251,041 261,800 Discontinued operations   21,299   18,801     64,701     (26,343 ) EBITDAX $ 398,896 $ 355,335   $ 1,475,628   $ 1,275,159                       Concho Resources Inc.Costs IncurredUnaudited   The table below provides the costs incurred for the periods indicated:   Costs incurred for oil and natural gas producing activities (a)   Three Months EndedYears EndedDecember 31,December 31,(in thousands)     2012     2011     2012     2011   Property acquisition costs: Proved $ 2,103 $ 94,510 $ 857,836 $ 163,658 Unproved 29,932 243,549 441,042 361,321 Exploration 214,109 152,590 781,174 562,679 Development   166,665   176,934   741,206   744,481 Total costs incurred for oil and natural gas properties $ 412,809 $ 667,583 $ 2,821,258 $ 1,832,139                               (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)     2012     2011     2012     2011   Proved property acquisition costs $ - $ 379 $ 29,113 $ 527 Exploration costs 159 1,346 2,611 2,184 Development costs   7,234   9,730   15,536   11,824 Total asset retirement obligations $ 7,393 $ 11,455 $ 47,260 $ 14,535                         Concho Resources Inc.Derivatives InformationUnaudited   The tables below provide data associated with the Company's derivatives at February 20, 2013 for the periods indicated:   2013First QuarterSecond QuarterThird QuarterFourth QuarterTotal   Oil Swaps: Volume (Bbl) 4,116,000 3,801,000 3,446,000 3,188,000 14,551,000 NYMEX price (Bbl) (a) $ 95.84 $ 95.84 $ 95.57 $ 95.34 $ 95.67   Basis Swap (b): Volume (Bbl) - 3,003,000 3,036,000 2,944,000 8,983,000 Price (Bbl) $ - $ (1.23 ) $ (1.22 ) $ (1.23 ) $ (1.23 )                                                                           2014   2015     2016     2017     Oil Swaps: Volume (Bbl) 10,928,000 1,076,000 429,000 168,000 NYMEX price (Bbl) (a) $ 91.57 $ 86.69 $ 88.31 $ 87.00                                     (a) The index prices for the oil contracts are based on the NYMEX – West Texas Intermediate (“WTI”) monthly average futures price. (b) The basis differential price is between the Midland – WTI and the Cushing – WTI. Concho Resources Inc.Price Moncrief, 432-683-7443Vice President of Capital Markets and Strategy