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Concho Resources' (CXO) Q3 Earnings and Sales Beat Estimates

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Concho Resources Inc. (CXO - Free Report) recently reported strong third-quarter 2018 earnings and revenues on the back of higher commodity-price realizations and robust production growth.

The company reported adjusted net earnings per share of $1.42, comfortably beating the Zacks Consensus Estimate of $1.13. The bottom line also improved significantly from the prior-year quarter’s adjusted income of 45 cents per share.

Concho Resources’ total operating revenues in the third quarter came in at $1,192 million, increasing substantially from $627 million recorded a year ago. The top line also surpassed the Zacks Consensus Estimate of $1,090 million.

Operating revenues from oil sales recorded a year-over-year increase of 92.2% to $957 million while gas revenues increased 82.2% from the prior-year quarter to $235 million.

Concho Resources Inc. Price, Consensus and EPS Surprise

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

Volume Analysis

Concho Resources' average quarterly volume increased 48.4% year over year to 286,634 barrels of oil equivalent per day (Boe/d), exceeding the company’s guidance. Of the total volume, 64.4% consisted of liquids. Daily oil output increased 54.4% to 184,554 barrels while natural gas production was 612,478 thousand cubic feet (Mcf), up 38.7% year over year.

The acquisition of RSP Permian, which was completed on Jul 19, led to the expansion of its Midland and Delaware Basin positions, thereby largely attributing to the production rise.

Realized Prices

The average realized natural gas price jumped from $3.18 per Mcf in the year-ago quarter to $4.18 per Mcf. Average oil-price realization increased to $56.38 per barrel from $45.29 in the year-ago period. Overall, the company fetched $45.23 per Boe compared with $35.29 a year ago.

Operating Costs

In the third quarter of 2018, Concho Resources' total operating expenses came in at $1,417 million, higher than $704 million recorded in the year-ago period. While production costs surged 47.2% year over year to $156 million, gathering, processing and transportation expenses totaled $16 million against no such cost incurred in third-quarter 2017. Notably, production cost per barrel of oil equivalent came down to $5.93 in the quarter from $5.99 in the year-ago quarter.

Balance Sheet

As of Sep 30, Concho Resources had cash and cash equivalents of $24 million. The company had long-term debt of $4,143 million, representing a debt-to-capitalization ratio of 19.4%. It currently has $193 million under its borrowing credit facility.

Dividend Initiation

The company decided to initiate a regular quarterly dividend payment of 12.5 cents (annualized to 50 cents), which will commence from the first quarter of 2019. The decision was backed by the recent RSP Permian acquisition, which is expected to enable the company to generate strong free cash flow from operations.

Guidance

For full-year 2019, the company expects capital expenditure in the band of $3.4-$3.6 billion. In 2019, it expects to run 34 rigs on an average and the number is expected to increase to 38 in 2020. While nearly 67% of 2018 capital budget is directed toward large-scale projects, the company has plans to increase the percentage to 80% in 2019.

The company foresees its average lateral length to be around 9,700 feet, reflecting a 20% increase from 2018. Concho Resources' crude oil output is expected to grow 25% in the fourth quarter of 2019 from the comparable period in 2018. The company, moreover, expects its total production to grow 25% per annum for the next two years. 

Zacks Rank & Other Key Picks

Currently, Midland, TX-based ConchoResources has a Zacks Rank #2 (Buy). Investors interested in the energy sector can also opt for other top-ranked stocks given below:

El Dorado, AR-based Murphy Oil Corporation (MUR - Free Report) carries a Zacks Rank #1 (Strong Buy). The company’s sales for 2018 are expected to grow more than 20% from 2017. You can see the complete list of today’s Zacks #1 Rank stocks here.

Brazilian state-run Petroleo Brasileiro S.A. or Petrobras (PBR - Free Report) has a Zacks Rank #2 (Buy). Its earnings for 2018 are expected to surge more than 100% from the 2017 level.

Woodlands, TX-based Anadarko Petroleum Corporation (APC - Free Report) holds a Zacks Rank #2. The company’s earnings for 2018 are expected to surge more than 250% year over year.

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