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Concho (CXO) Q2 Earnings Beat Big, Lifts Production Outlook

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Permian-focused energy explorer Concho Resources Inc. (CXO - Free Report) reported second-quarter adjusted net earnings per share of 52 cents, comfortably beating the Zacks Consensus Estimate of 43 cents and double the prior-year quarter adjusted income of 26 cents.

The outperformance came on the back of higher commodity prices and strong production growth.

Concho Resources’ total operating revenues for the second quarter amounted to $567 million, which increased substantially from $396 million a year ago but was below the Zacks Consensus Estimate of $649 million.

Concho Resources Inc. Price, Consensus and EPS Surprise

 

Concho Resources Inc. Price, Consensus and EPS Surprise | Concho Resources Inc. Quote

The Permian Basin Advantage

Experts say that it’s cheaper to drill and complete oil wells in the Permian Basin than most other major fields. Moreover, there are certain parts of the shale play whose well-returns are the best in the U.S. With crude prices still down significantly from their 2014 levels, well returns have become a very important metric to gauge profitability.

Permian’s attractive economics means that producers can still make money there at the current, just over-$50-a-barrel price. This is mainly because of the region's extensive pipeline infrastructure, plentiful labor and supplies, and relatively warm winters that makes year-round work possible. Most other domestic shale regions need prices above $60 to support new developments and expansions.

Apart from Concho Resources, other key players in the Permian Basin are Apache Corp. (APA - Free Report) , as well as biggies like ExxonMobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) .

Volume Analysis

Concho Resources' average quarterly volume increased 27% year over year to 184.7 thousand barrels of oil equivalent per day, of which 61% was liquids. Daily oil output was up 27% to 113.2 thousand barrels, while natural gas production came in at 428.8 million cubic feet (up 28%).

Realized Prices

The average realized natural gas price jumped 44% from the year-ago quarter to $2.71 per thousand cubic feet, while average oil price realization increased 7% to $44.75 per barrel. Overall, the company fetched $33.73 per barrel as against $30.00 a year back.

Balance Sheet & Capital Expenditure

As of Jun 30, 2017, Concho Resources had approximately $662 million in cash and cash equivalents. The company had long-term debt of $2,741 million, representing a debt-to-capitalization ratio of 23.9%.

Guidance

Following second-quarter’s impressive production growth, Concho Resources – a Zacks Rank #3 (Hold) stock – raised its full-year production growth guidance range to 24%–26%, from the prior 21%–25%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company has provided third quarter net production guidance of 186–190 thousand barrels of oil equivalent per day. Capital expenditures for 2017 are estimated to be between $1,600 and $1,700 million.

Share Performance

Shares of Concho Resources have lost 5.3% during the second quarter versus the 16.9% decline of the industry.

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