Company Quick10K Filing
Quick10K
Concho Resources
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$110.92 201 $22,250
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-31 Earnings, Exhibits, Earnings, Exhibits
8-K 2019-07-18 Earnings, Earnings
8-K 2019-05-16 Officers, Shareholder Vote, Exhibits
8-K 2019-04-30 Earnings, Earnings, Exhibits
8-K 2019-02-19 Earnings, Earnings, Exhibits
8-K 2019-01-01 Enter Agreement, Officers, Exhibits
8-K 2018-10-30 Earnings, Earnings, Exhibits
8-K 2018-08-14 Enter Agreement, Exhibits
8-K 2018-08-01 Earnings, Earnings, Exhibits
8-K 2018-07-19 M&A, Officers, Other Events, Exhibits
8-K 2018-07-17 Shareholder Vote, Other Events
8-K 2018-07-02 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-14 Enter Agreement, Exhibits
8-K 2018-06-14 Other Events, Exhibits
8-K 2018-05-17 Officers, Shareholder Vote, Other Events
8-K 2018-05-01 Earnings, Earnings, Exhibits
8-K 2018-04-27 Other Events
8-K 2018-03-27 Enter Agreement, Exhibits
8-K 2018-02-20 Earnings, Earnings, Exhibits
8-K 2018-01-02 Officers, Amend Bylaw, Exhibits
NRG NRG Energy 9,800
NATI National Instruments 5,580
SAIC Science Applications 4,480
EXP Eagle Materials 4,070
SINA Sina 3,950
WINS Wins Finance Holdings 411
MNTX Manitex 151
HDSN Hudson Technologies 81
AAME Atlantic American 47
TURV Two Rivers Water & Farming 0
CXO 2019-06-30
Part I - Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Note 1. Organization and Nature of Operations
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Note 3. Rsp Acquisition
Note 4. Other Acquisitions, Divestitures and Nonmonetary Transactions
Note 5. Stock Incentive Plan
Note 6. Disclosures About Fair Value Measurements
Note 7. Derivative Financial Instruments
Note 8. Debt
Note 9. Commitments and Contingencies
Note 10. Income Taxes
Note 11. Related Party Transactions
Note 12. Earnings per Share
Note 13. Subsidiary Guarantors
Note 14. Subsequent Events
Note 15. Supplementary Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.2 cxo-ex102thirdamendmen.htm
EX-31.1 cxo-ex31106302019.htm
EX-31.2 cxo-ex31206302019.htm
EX-32.1 cxo-ex32106302019.htm
EX-32.2 cxo-ex32206302019.htm

Concho Resources Earnings 2019-06-30

CXO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                           to                                          a
Commission file number: 1-33615
CONCHO RESOURCES INC
(Exact name of registrant as specified in its charter)
Delaware
 
76-0818600
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
One Concho Center
 
 
600 West Illinois Avenue
 
 
Midland
Texas
 
79701
(Address of principal executive offices)
 
(Zip Code)

 
(432)
683-7443
 
 
(Registrant’s telephone number, including area code)
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.001 per share
 
CXO
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No ¨  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  þ  No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No þ  
Number of shares of the registrant’s common stock outstanding at July 30, 2019: 201,078,813 shares
 


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements and information contained in or incorporated by reference into this report that express a belief, expectation, or intention, or that are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include statements, projections and estimates concerning our future financial position, operations, performance, business strategy, oil and natural gas reserves, drilling program, capital expenditures, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims, disputes and derivative activities. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “could,” “may,” “foresee,” “plan,” “will,” “goal” or other words that convey future events, expectations or possible outcomes. Forward-looking statements are not guarantees of performance. We have based these forward-looking statements on our current expectations and assumptions about future events and their potential effect on us. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Actual results may differ materially from those implied or expressed by any forward-looking statements. These forward-looking statements speak only as of the date of this report, or if earlier, as of the date they were made. We disclaim any obligation to update or revise these statements unless required by law, whether as a result of new information, future events or otherwise, and we caution you not to rely on them unduly. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties relating to, among other matters, the risks discussed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018, as well as those factors summarized below:
declines in, the sustained depression of, or increased volatility in the prices we receive for our oil and natural gas, or increases in the differential between index oil or natural gas prices and prices received;
the effects of government regulation, permitting and other legal requirements, including new legislation or regulation related to hydraulic fracturing, climate change or derivatives reform;
competition in the oil and natural gas industry;
disruptions to, capacity constraints in or other limitations on the pipeline systems that deliver our oil and natural gas and other processing and transportation considerations;
drilling, completion and operating risks, including our ability to efficiently execute large-scale project development as we could experience delays, curtailments and other adverse impacts associated with a high concentration of activity;
risks related to the concentration of our operations in the Permian Basin of West Texas and Southeast New Mexico;
uncertainties about the estimated quantities of oil and natural gas reserves;
uncertainties about our ability to successfully execute our business and financial plans and strategies;
uncertainty concerning our assumed or possible future results of operations;
evolving cybersecurity risks, such as those involving unauthorized access, denial-of-service attacks, malicious software, data privacy breaches by employees, insiders or others with authorized access, cyber or phishing-attacks, ransomware, malware, social engineering, physical breaches or other actions;
risks related to ongoing expansion of our business, including the recruitment and retention of qualified personnel in the Permian Basin;
environmental hazards, such as uncontrollable flows of oil, natural gas, saltwater, well fluids, toxic gas or other pollution into the environment, including groundwater contamination;
general economic and business conditions, either internationally or domestically;
the costs and availability of equipment, resources, services and qualified personnel required to perform our drilling, completion and operating activities;
risks associated with acquisitions such as increased expenses and integration efforts, failure to realize the expected benefits of the transaction and liabilities associated with acquired properties or businesses;
the impact of current and potential changes to federal or state tax rules and regulations;
potential financial losses or earnings reductions from our commodity price risk-management program;
difficult and adverse conditions in the domestic and global capital and credit markets;
the adequacy of our capital resources and liquidity including, but not limited to, access to additional borrowing capacity under our Credit Facility, as defined herein;
the impact of potential changes in our credit ratings; and
uncertainties about our ability to replace reserves and economically develop our current reserves.
Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and the price and cost assumptions made by our reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ from the quantities of oil and natural gas that are ultimately recovered.

ii

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements (Unaudited)
 
 
 
 
 
 
 
 

iii

Table of Contents

Concho Resources Inc.
Consolidated Balance Sheets
Unaudited
(in millions, except share and per share amounts)
June 30,
2019

December 31,
2018
Assets
Current assets:



Cash and cash equivalents
$


$

Accounts receivable, net of allowance for doubtful accounts:



Oil and natural gas
460


466

Joint operations and other
301


365

Inventory
33


35

Derivative instruments
12


484

Prepaid costs and other
54


59

Total current assets
860


1,409

Property and equipment:



Oil and natural gas properties, successful efforts method
33,321


31,706

Accumulated depletion and depreciation
(11,479
)

(9,701
)
Total oil and natural gas properties, net
21,842


22,005

Other property and equipment, net
374


308

Total property and equipment, net
22,216


22,313

Deferred loan costs, net
9


10

Goodwill
2,222


2,224

Intangible assets, net
18


19

Noncurrent derivative instruments
29


211

Other assets
124


108

Total assets
$
25,478


$
26,294

Liabilities and Stockholders’ Equity
Current liabilities:



Accounts payable - trade
$
55


$
50

Book overdrafts
143


159

Revenue payable
255


253

Accrued drilling costs
506


574

Derivative instruments
126



Other current liabilities
318


320

Total current liabilities
1,403


1,356

Long-term debt
4,350


4,194

Deferred income taxes
1,561


1,808

Noncurrent derivative instruments
12



Asset retirement obligations and other long-term liabilities
193


168

Commitments and contingencies (Note 9)



Stockholders’ equity:



Common stock, $0.001 par value; 300,000,000 authorized; 201,764,616 and 201,288,884 shares issued at June 30, 2019 and December 31, 2018, respectively



Additional paid-in capital
14,820


14,773

Retained earnings
3,284


4,126

Treasury stock, at cost; 1,166,326 and 1,031,655 shares at June 30, 2019 and December 31, 2018, respectively
(145
)

(131
)
Total stockholders’ equity
17,959


18,768

Total liabilities and stockholders’ equity
$
25,478


$
26,294

 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

Concho Resources Inc.
Consolidated Statements of Operations
Unaudited
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in millions, except per share amounts)
2019
 
2018
 
2019
 
2018
Operating revenues:
 
 
 
 
 
 
 
Oil sales
$
1,049

 
$
795

 
$
1,984

 
$
1,588

Natural gas sales
78

 
150

 
247

 
304

Total operating revenues
1,127

 
945

 
2,231

 
1,892

Operating costs and expenses:
 
 
 
 
 
 
 
Oil and natural gas production
188

 
130

 
362

 
260

Production and ad valorem taxes
84

 
70

 
170

 
140

Gathering, processing and transportation
22

 
9

 
48

 
20

Exploration and abandonments
17

 
8

 
64

 
26

Depreciation, depletion and amortization
478

 
310

 
943

 
627

Accretion of discount on asset retirement obligations
2

 
2

 
5

 
4

Impairments of long-lived assets
868

 

 
868

 

General and administrative (including non-cash stock-based compensation of $23 and $18 for the three months ended June 30, 2019 and 2018, respectively, and $47 and $35 for the six months ended June 30, 2019 and 2018, respectively)
88

 
72

 
179

 
137

(Gain) loss on derivatives
(217
)
 
133

 
842

 
168

(Gain) loss on disposition of assets, net
1

 
(1
)
 

 
(724
)
Transaction costs
1

 
9

 
1

 
16

Total operating costs and expenses
1,532

 
742

 
3,482

 
674

Income (loss) from operations
(405
)
 
203

 
(1,251
)
 
1,218

Other income (expense):
 
 
 
 
 
 
 
Interest expense
(48
)
 
(27
)
 
(95
)
 
(57
)
Other, net
303

 
1

 
307

 
105

Total other income (expense)
255

 
(26
)
 
212

 
48

Income (loss) before income taxes
(150
)
 
177

 
(1,039
)
 
1,266

Income tax (expense) benefit
53

 
(40
)
 
247

 
(294
)
Net income (loss)
$
(97
)
 
$
137

 
$
(792
)
 
$
972

Earnings per share:
 
 
 
 
 
 
 
Basic net income (loss)
$
(0.48
)
 
$
0.92

 
$
(3.98
)
 
$
6.52

Diluted net income (loss)
$
(0.48
)
 
$
0.92

 
$
(3.98
)
 
$
6.50

 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

Concho Resources Inc.
Consolidated Statements of Stockholders’ Equity
Unaudited
 
Three Months Ended June 30, 2019
 
Common Stock Issued
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury Stock
 
Total
Stockholders’
Equity
(in millions, except share data)
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
(in thousands)
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
BALANCE AT MARCH 31, 2019
201,755

 
$

 
$
14,797

 
$
3,406

 
1,156

 
$
(144
)
 
$
18,059

Net loss

 

 

 
(97
)
 

 

 
(97
)
Common stock dividends ($0.125 per share)

 

 

 
(25
)
 

 

 
(25
)
Grants of restricted stock
26

 

 

 

 

 

 

Performance unit share conversion

 

 

 

 

 

 

Cancellation of restricted stock
(16
)
 

 

 

 

 

 

Stock-based compensation

 

 
23

 

 

 

 
23

Purchase of treasury stock

 

 

 

 
10

 
(1
)
 
(1
)
BALANCE AT JUNE 30, 2019
201,765

 
$

 
$
14,820

 
$
3,284

 
1,166

 
$
(145
)
 
$
17,959

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019
 
Common Stock Issued
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury Stock
 
Total
Stockholders’
Equity
(in millions, except share data)
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
(in thousands)
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
BALANCE AT DECEMBER 31, 2018
201,289

 
$

 
$
14,773

 
$
4,126

 
1,032

 
$
(131
)
 
$
18,768

Net loss

 

 

 
(792
)
 

 

 
(792
)
Common stock dividends ($0.25 per share)

 

 

 
(50
)
 

 

 
(50
)
Grants of restricted stock
261

 

 

 

 

 

 

Performance unit share conversion
246

 

 

 

 

 

 

Cancellation of restricted stock
(31
)
 

 

 

 

 

 

Stock-based compensation

 

 
47

 

 

 

 
47

Purchase of treasury stock

 

 

 

 
134

 
(14
)
 
(14
)
BALANCE AT JUNE 30, 2019
201,765

 
$

 
$
14,820

 
$
3,284

 
1,166

 
$
(145
)
 
$
17,959

 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

Concho Resources Inc.
Consolidated Statements of Stockholders’ Equity
Unaudited
 
Three Months Ended June 30, 2018
 
Common Stock Issued
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury Stock
 
Total
Stockholders’
Equity
(in millions, except share data)
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
(in thousands)
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
BALANCE AT MARCH 31, 2018
149,870

 
$

 
$
7,159

 
$
2,675

 
800

 
$
(96
)
 
$
9,738

Net income

 

 

 
137

 

 

 
137

Grants of restricted stock
335

 

 

 

 

 

 

Performance unit share conversion

 

 

 

 

 

 

Cancellation of restricted stock
(10
)
 

 

 

 

 

 

Stock-based compensation

 

 
18

 

 

 

 
18

Purchase of treasury stock

 

 

 

 
13

 
(2
)
 
(2
)
BALANCE AT JUNE 30, 2018
150,195

 
$

 
$
7,177

 
$
2,812

 
813

 
$
(98
)
 
$
9,891

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
Common Stock Issued
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury Stock
 
Total
Stockholders’
Equity
(in millions, except share data)
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
(in thousands)
 
 
 
 
 
 
 
(in thousands)
 
 
 
 
BALANCE AT DECEMBER 31, 2017
149,325

 
$

 
$
7,142

 
$
1,840

 
598

 
$
(67
)
 
$
8,915

Net income

 

 

 
972

 

 

 
972

Grants of restricted stock
447

 

 

 

 

 

 

Performance unit share conversion
446

 

 

 

 

 

 

Cancellation of restricted stock
(23
)
 

 

 

 

 

 

Stock-based compensation

 

 
35

 

 

 

 
35

Purchase of treasury stock

 

 

 

 
215

 
(31
)
 
(31
)
BALANCE AT JUNE 30, 2018
150,195

 
$

 
$
7,177

 
$
2,812

 
813

 
$
(98
)
 
$
9,891

 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

Concho Resources Inc.
Consolidated Statements of Cash Flows
Unaudited
 
Six Months Ended
June 30,
(in millions)
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(792
)
 
$
972

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
943

 
627

Accretion of discount on asset retirement obligations
5

 
4

Impairments of long-lived assets
868

 

Exploration and abandonments
51

 
14

Non-cash stock-based compensation expense
47

 
35

Deferred income taxes
(247
)
 
294

Net gain on disposition of assets and other non-operating items
(288
)
 
(724
)
Loss on derivatives
842

 
168

Net settlements paid on derivatives
(50
)
 
(194
)
Other
(10
)
 
(95
)
Changes in operating assets and liabilities, net of acquisitions and dispositions:
 
 
 
Accounts receivable
33

 
(56
)
Prepaid costs and other
4

 
(22
)
Inventory
1

 
(3
)
Accounts payable
5

 
5

Revenue payable
5

 
43

Other current liabilities
(15
)
 
22

Net cash provided by operating activities
1,402

 
1,090

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Additions to oil and natural gas properties
(1,726
)
 
(941
)
Acquisitions of oil and natural gas properties
(14
)
 
(19
)
Additions to property, equipment and other assets
(41
)
 
(11
)
Proceeds from the disposition of assets
311

 
261

Direct transaction costs for asset acquisitions and dispositions
(3
)
 
(3
)
Distribution from equity method investment

 
148

Net cash used in investing activities
(1,473
)
 
(565
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Borrowings under credit facility
2,060

 
1,222

Payments on credit facility
(1,905
)
 
(1,544
)
Payments for loan costs

 
(1
)
Payment of common stock dividends
(50
)
 

Purchases of treasury stock
(14
)
 
(31
)
Decrease in book overdrafts
(16
)
 
(116
)
Other
(4
)
 

Net cash provided by (used in) financing activities
71

 
(470
)
Net increase in cash and cash equivalents

 
55

Cash and cash equivalents at beginning of period

 

Cash and cash equivalents at end of period
$

 
$
55

 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2019
Unaudited


Note 1. Organization and nature of operations
Concho Resources Inc. (the “Company”) is a Delaware corporation formed in February 2006. The Company’s principal business is the acquisition, development, exploration and production of oil and natural gas properties primarily located in the Permian Basin of West Texas and Southeast New Mexico.
Note 2. Basis of presentation and summary of significant accounting policies
A complete discussion of the Company’s significant accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”).
Principles of consolidation. The consolidated financial statements of the Company include the accounts of the Company and its 100 percent owned subsidiaries. The Company consolidates the financial statements of these entities. All material intercompany balances and transactions have been eliminated.
Reclassifications. Certain prior period amounts have been reclassified to conform to the 2019 presentation. These reclassifications had no impact on net income (loss), total assets, liabilities and stockholders’ equity or total cash flows.
Use of estimates in the preparation of financial statements. Preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Depletion of oil and natural gas properties is determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved oil and natural gas reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves, commodity price outlooks and prevailing market rates of other sources of income and costs. Other significant estimates include, but are not limited to, asset retirement obligations, goodwill, fair value of stock-based compensation, fair value of business combinations, fair value of nonmonetary transactions, fair value of derivative financial instruments and income taxes.
Interim financial statements. The accompanying consolidated financial statements of the Company have not been audited by the Company’s independent registered public accounting firm, except that the consolidated balance sheet at December 31, 2018 is derived from audited consolidated financial statements. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments necessary to present fairly the Company’s consolidated financial statements. All such adjustments are of a normal, recurring nature. In preparing the accompanying consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.
Certain disclosures have been condensed in or omitted from these consolidated financial statements. Accordingly, these condensed notes to the consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s 2018 Form 10-K.
Equity method investments. The Company accounts for its equity method investments under the equity method of accounting and includes the investment balance in other assets on the consolidated balance sheets. Gains and losses incurred from the Company’s equity investments are recorded in other income (expense) on the consolidated statements of operations. The Company recorded net income of $15 million for the three months ended June 30, 2019, and $15 million and $5 million for the six months ended June 30, 2019 and 2018, respectively.
Until May 2019, the Company owned a 23.75 percent membership interest in Oryx Southern Delaware Holdings, LLC (“Oryx”), an entity that owned and operated Oryx I, a crude oil gathering and transportation system in the Delaware Basin (“Oryx I”). In February 2018, Oryx obtained a term loan of $800 million. The proceeds were used in part to fund a cash distribution to its equity holders, of which the Company received a distribution of approximately $157 million. Of this amount, approximately $54 million fully offset the Company’s net investment in Oryx. The net investment of $54 million included $45 million of Company's contributions made to Oryx and $9 million of equity income. The remaining distribution of approximately $103 million was recorded in other income (expense) on the Company’s consolidated statement of operations. In May 2019, Oryx completed the sale of 100 percent of its equity interests in Oryx I. The Company received $289 million, net of closing costs, in connection with the sale of Oryx I. 

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Table of Contents
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2019
Unaudited

In April 2019, the Company entered into a midstream joint venture, Beta Holding Company, LLC (“Beta Holding”), to construct a pipeline to gather and transport oil production in the Midland Basin. The Company also entered into a ten-year dedication agreement with an affiliate of Beta Holding to transport the Company’s oil production in the Midland Basin. The Company owns a 50 percent membership interest in Beta Holding.
The Company owns a membership interest in WaterBridge Operating LLC (“WaterBridge”), an entity that operates and manages various water infrastructure assets located in the Permian Basin. The Company also has a water management services agreement with WaterBridge.
Litigation contingencies. The Company is a party to proceedings and claims incidental to its business. In each reporting period, the Company assesses these claims in an effort to determine the degree of probability and range of possible loss for potential accrual in its consolidated financial statements. The amount of any resulting losses may differ from these estimates. An accrual is recorded for a material loss contingency when its occurrence is probable and damages are reasonably estimable. See Note 9 for additional information.
Revenue recognition. The Company recognizes revenues from the sales of oil and natural gas to its customers and presents them disaggregated on the Company’s consolidated statements of operations. All revenues are recognized in the geographical region of the Permian Basin.
The Company enters into contracts with customers to sell its oil and natural gas production. Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers,” (“ASC 606”). Specifically, revenue is recognized when the Company’s performance obligations under these contracts are satisfied, which generally occurs with the transfer of control of the oil and natural gas to the purchaser. Control is generally considered transferred when the following criteria are met: (i) transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract. Consideration under the oil and natural gas marketing contracts is typically received from the purchaser one to two months after production. At June 30, 2019 and December 31, 2018, the Company had receivables related to contracts with customers of $460 million and $466 million, respectively.
Oil Contracts. The majority of the Company’s oil marketing contracts transfer physical custody and title at or near the wellhead, which is generally when control of the oil has been transferred to the purchaser. The majority of the oil produced is sold under contracts using market-based pricing which is then adjusted for differentials based upon delivery location and oil quality. To the extent the differentials are incurred after the transfer of control of the oil, the differentials are included in oil sales on the consolidated statements of operations as they represent part of the transaction price of the contract. If the differentials, or other related costs, are incurred prior to the transfer of control of the oil, those costs are included in gathering, processing and transportation on the Company’s consolidated statements of operations and are accounted for as costs incurred directly and not netted from transaction price.
Natural Gas Contracts. The majority of the Company’s natural gas is sold at the lease location, which is generally when control of the natural gas has been transferred to the purchaser. The natural gas is sold under (i) percentage of proceeds processing contracts, (ii) fee-based contracts or (iii) a hybrid of percentage of proceeds and fee-based contracts. Under the majority of the Company’s contracts, the purchaser gathers the natural gas in the field where it is produced and transports it via pipeline to natural gas processing plants where natural gas liquid products are extracted. The natural gas liquid products and remaining residue gas are then sold by the purchaser. Under the percentage of proceeds and hybrid percentage of proceeds and fee-based contracts, the Company receives a percentage of the value for the extracted liquids and the residue gas. Under the fee-based contracts, the Company receives natural gas liquids and residue gas value, less the fee component, or is invoiced the fee component. To the extent control of the natural gas transfers upstream of the transportation and processing activities, revenue is recognized as the net amount received from the purchaser. To the extent that control transfers downstream of those activities, revenue is recognized on a gross basis, and the related costs are classified in gathering, processing and transportation on the Company’s consolidated statements of operations.
The Company does not disclose the value of unsatisfied performance obligations under its contracts with customers as it applies the practical exemption in accordance with ASC 606. The exemption, as described in ASC 606-10-50-14(a), applies to variable consideration that is recognized as control of the product is transferred to the customer. Since each unit of product represents a separate performance obligation, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
General and administrative expense. The Company receives fees for the operation of jointly-owned oil and natural gas properties during the drilling and production phases and records such reimbursements as reductions to general and administrative

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Table of Contents
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2019
Unaudited

expense. Such fees totaled $4 million and $5 million for the three months ended June 30, 2019 and 2018, respectively, and $8 million and $9 million for the six months ended June 30, 2019 and 2018, respectively.
Recently adopted accounting pronouncements.  In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which requires all leases with a term greater than one year to be recognized on the consolidated balance sheet while maintaining similar classifications for finance and operating leases. Lease expense recognition on the consolidated statements of operations was effectively unchanged. The Company adopted this guidance on January 1, 2019. The Company made policy elections not to capitalize short-term leases for all asset classes and not to separate non-lease components from lease components for all asset classes except for vehicles. The Company also did not elect the package of practical expedients that allowed for certain considerations under the original “Leases (Topic 840)” accounting standard (“Topic 840”) to be carried forward upon adoption of ASU 2016-02.
In January 2018, the FASB issued ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic 842,” which provides an optional practical expedient not to evaluate land easements that existed or expired before the adoption of ASU 2016-02 and that were not previously accounted for as leases under Topic 840. The Company enters into land easements on a routine basis as part of its ongoing operations and has many such agreements currently in place; however, the Company did not account for any land easements under Topic 840. As this guidance serves as an amendment to ASU 2016-02, the Company elected this practical expedient, which became effective upon the date of adoption of ASU 2016-02. The Company will assess any new land easements to determine whether the arrangement should be accounted for as a lease. In July 2018, the FASB issued ASU No. 2018-11, “Targeted Improvements,” which provides a transition election not to restate comparative periods for the effects of applying the new lease standard. This transition election permits entities to change the date of initial application to the beginning of the year of adoption and to recognize the effects of applying the new standard as a cumulative-effect adjustment to the opening balance of retained earnings. The Company elected this transition approach, however the cumulative impact of adoption in the opening balance of retained earnings as of January 1, 2019 was zero.
The Company enters into lease agreements to support its operations. These agreements are for leases on assets such as office space, vehicles, field equipment and drilling rigs. Upon adoption, the Company recognized $35 million of right-of-use assets, of which $19 million and $16 million relate to the Company’s operating and finance leases, respectively, and $37 million of associated lease liabilities. See Note 9 for additional disclosures of the Company’s leases.
In August 2018, the Securities and Exchange Commission (“SEC”) issued a final rule that amends certain of its disclosure requirements that have become redundant, duplicative, overlapping, outdated or superseded, in light of other disclosure requirements, U.S. GAAP or changes in the information environment. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. The final rule amends numerous SEC rules, items and forms covering a diverse group of topics, including, but not limited to, changes in stockholders’ equity. The final rule extends the annual disclosure requirement in SEC Regulation S-X, Rule 3-04, of presenting changes in stockholders’ equity to interim periods. Registrants are required to analyze changes in stockholders’ equity in the form of a reconciliation for the current quarter and year-to-date interim periods and comparative periods in the prior year. As a result, the Company updated its presentation of the consolidated statements of stockholders’ equity to include comparative periods in the prior year. In addition, the final rule requires the presentation of dividends per share to be disclosed in the statement of stockholders’ equity.
New accounting pronouncements issued but not yet adopted. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“Topic 326”), which replaces the current “incurred loss” methodology for recognizing credit losses with an “expected loss” methodology. This new methodology requires that a financial asset measured at amortized cost be presented at the net amount expected to be collected. This standard is intended to provide more timely decision-useful information about the expected credit losses on financial instruments. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments–Credit Losses,” which makes amendments to clarify the scope of the guidance, including the amendment clarifying that receivables arising from operating leases are not within the scope of Topic 326. This guidance is effective for fiscal years beginning after December 15, 2019, and early adoption is allowed as early as fiscal years beginning after December 15, 2018. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”), which, among other things, clarifies that (i) certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account, (ii) adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 and (iii) requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative

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Table of Contents
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2019
Unaudited

arrangement participant is not a customer. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and early adoption is permitted. The amendments in this update should be applied retrospectively to the date of initial application of Topic 606. An entity should recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and the annual period that includes the date of the entity’s initial application of Topic 606. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.
Note 3. RSP Acquisition
On July 19, 2018, the Company completed the acquisition of RSP Permian, Inc. (“RSP”) through an all-stock transaction (the “RSP Acquisition”) for approximately $7.5 billion.
Purchase price allocation. The RSP Acquisition has been accounted for as a business combination, using the acquisition method. The following table represents the allocation of the total purchase price of RSP to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill. Any value assigned to goodwill is not deductible for income tax purposes.
The following table sets forth the Company’s final purchase price allocation:
(in millions)
 
Total purchase price
$
7,549

 
 
Fair value of liabilities assumed:
 
Accounts payable – trade
$
48

Accrued drilling costs
79

Current derivative instruments
10

Other current liabilities
116

Long-term debt
1,758

Deferred income taxes
515

Asset retirement obligations
20

Noncurrent derivative instruments
5

Total liabilities assumed
$
2,551

 
 
Total purchase price plus liabilities assumed
$
10,100

 
 
Fair value of assets acquired:
 
Accounts receivable
$
194

Current derivative instruments
36

Other current assets
21

Proved oil and natural gas properties
4,055

Unproved oil and natural gas properties
3,565

Other property and equipment
5

Noncurrent derivative instruments
2

Implied goodwill
2,222

Total assets acquired
$
10,100

 
 


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Table of Contents
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2019
Unaudited

Pro forma data. The following unaudited pro forma combined condensed financial data for the three and six months ended June 30, 2018 was derived from the historical financial statements of the Company giving effect to the RSP Acquisition as if it had occurred on January 1, 2017. The below information reflects pro forma adjustments for the issuance of the Company’s common stock in exchange for RSP’s outstanding shares of common stock, as well as pro forma adjustments based on available information and certain assumptions that the Company believes are reasonable, including (i) the Company’s common stock issued to convert RSP’s outstanding shares of common stock and equity awards as of the closing date of the RSP Acquisition, (ii) the depletion of RSP’s fair-valued proved oil and natural gas properties and (iii) the estimated tax impacts of the pro forma adjustments.
The pro forma results of operations do not include any cost savings or other synergies that may result from the RSP Acquisition. The pro forma financial data does not include the pro forma results of operations for any other acquisitions made during the period. The pro forma combined condensed financial data has been included for comparative purposes only and is not necessarily indicative of the results that might have occurred had the RSP Acquisition taken place on January 1, 2017 and is not intended to be a projection of future results.
(in millions, except per share amounts)
Three Months Ended
June 30, 2018
 
Six Months Ended
June 30, 2018
Operating revenues
$
1,262

 
$
2,488

Net income
$
238

 
$
1,169

Earnings per share:
 
 
 
Basic net income
$
1.19

 
$
5.85

Diluted net income
$
1.19

 
$
5.83

 
 
 
 

Note 4. Other acquisitions, divestitures and nonmonetary transactions
During the six months ended June 30, 2018, the Company closed the following transactions:
February 2018 acquisition and divestiture. In February 2018, the Company closed an acquisition treated as a business combination where it received producing wells along with approximately 21,000 net acres, primarily located in the Midland Basin. As consideration for the non-cash acquisition, the Company divested of certain producing wells and approximately 34,000 net acres located primarily in the northern portion of the Delaware Basin. The business acquired was valued at approximately $755 million as compared to the historical book value of the divested assets of approximately $180 million, which resulted in a non-cash gain of approximately $575 million, included in gain on disposition of assets, net on the Company’s consolidated statement of operations for the six months ended June 30, 2018.
Delaware Basin divestitures. In January 2018, the Company closed on two asset divestitures of certain non-core assets in Reeves and Ward Counties, Texas, with combined proceeds of approximately $280 million. After direct transaction costs, the Company recorded a pre-tax gain of approximately $134 million, which is included in gain on disposition of assets, net on its consolidated statement of operations for the six months ended June 30, 2018. The assets divested included proved and unproved oil and natural gas properties on approximately 20,000 net acres.
Nonmonetary transactions. During the six months ended June 30, 2018, the Company completed multiple nonmonetary transactions. These transactions included exchanges of both proved and unproved oil and natural gas properties. Certain of these transactions were accounted for at fair value and, as a result, the Company recorded pre-tax gains of approximately $15 million, included in gain on disposition of assets, net on the Company’s consolidated statement of operations for the six months ended June 30, 2018.

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Table of Contents
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2019
Unaudited

Note 5. Stock incentive plan
On May 16, 2019, the Company’s stockholders approved and adopted the Company’s 2019 Stock Incentive Plan (“the Plan”), which, among other things, increased the total shares authorized for issuance from 10.5 million to 15 million. The Plan provides for granting stock options, restricted stock awards and performance unit awards to directors, officers and employees of the Company. The restricted stock awards vest over a period ranging from one to ten years. The holders of unvested restricted stock awards have voting rights and the right to receive dividends.
In January 2019, the Company granted 212,947 performance unit awards. Included in this grant were 38,952 performance unit awards granted to certain officers, of which 19,476 have a three-year performance period and 19,476 have a five-year performance period. For these 38,952 performance unit awards, at the end of each performance period, each of these performance unit awards will convert into a restricted stock award with the number of shares determined based upon performance criteria, which will then vest at a rate of 20 percent per year commencing on the sixth anniversary of the grant date. All other performance unit awards granted during 2019 will vest at the end of a three-year performance period.
Shares issued as a result of awards granted under the Plan are generally new common shares.
A summary of the Company’s restricted stock shares and performance unit activity under the Plan for the six months ended June 30, 2019 is presented below:
 
Restricted
Stock Shares
 
Performance
Units
 
Outstanding at December 31, 2018
1,364,699

 
218,391

 
Awards granted (a)
260,537

 
212,947

(b)
Awards canceled / forfeited
(31,119
)