e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-33615
Concho Resources Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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76-0818600 |
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(State or other jurisdiction
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(I.R.S. Employer |
of incorporation or organization)
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Identification No.) |
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550 West Texas Avenue, Suite 100 |
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Midland, Texas
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79701 |
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(Address of principal executive offices)
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(Zip code) |
(432) 683-7443
(Registrants telephone number, including area code)
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
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 and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Number
of shares of the registrants common stock outstanding at
May 5, 2010: 91,548,943 shares.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements 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 (the
Securities Act) and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act).
These forward-looking statements may include projections and estimates concerning capital
expenditures, our liquidity and capital resources, the timing and success of specific projects,
outcomes and effects of litigation, claims and disputes, elements of our business strategy and
other statements concerning our operations, economic performance and financial condition.
Forward-looking statements are generally accompanied by words such as estimate, project,
predict, believe, expect, anticipate, potential, could, may, foresee, plan,
goal or other words that convey the uncertainty of future events or outcomes. We have based these
forward-looking statements on our current expectations and assumptions about future events. 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. 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 securities law, 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 our Annual Report on Form 10-K for the year ended December 31,
2009, as well as those factors summarized below:
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sustained or further declines in the prices we receive for our oil and natural
gas; |
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uncertainties about the estimated quantities of oil and natural gas reserves,
including uncertainties associated with the United States Securities and Exchange
Commissions (the SEC) new rules governing oil and natural gas reserve reporting; |
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drilling and operating risks; |
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the adequacy of our capital resources and liquidity including, but not limited
to, access to additional borrowing capacity under our credit facility; |
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the effects of government regulation, permitting and other legal requirements; |
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difficult and adverse conditions in the domestic and global capital and credit
markets; |
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risks related to the concentration of our operations in the Permian Basin of
Southeast New Mexico and West Texas; |
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potential financial losses or earnings reductions from our commodity price risk
management program; |
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shortages of oilfield equipment, services and qualified personnel and increased
costs for such equipment, services and personnel; |
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risks and liabilities associated with acquired properties or businesses; |
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uncertainties about our ability to successfully execute our business and
financial plans and strategies; |
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uncertainties about our ability to replace reserves and economically develop our
current reserves; |
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general economic and business conditions, either internationally or domestically
or in the jurisdictions in which we operate; |
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competition in the oil and natural gas industry; |
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uncertainty concerning our assumed or possible future results of operations; and |
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our existing indebtedness. |
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 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
PART I FINANCIAL INFORMATION
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Item 1. |
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Consolidated Financial Statements (Unaudited) |
iii
Concho Resources Inc.
Consolidated Balance Sheets
Unaudited
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March 31, |
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December 31, |
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(in thousands, except share and per share data) |
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2010 |
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2009 |
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Assets
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Current assets: |
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Cash and cash equivalents |
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$ |
6,988 |
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$ |
3,234 |
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Accounts receivable, net of allowance for doubtful accounts: |
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Oil and natural gas |
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94,886 |
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69,199 |
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Joint operations and other |
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86,356 |
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100,120 |
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Related parties |
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407 |
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216 |
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Derivative instruments |
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9,078 |
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1,309 |
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Deferred income taxes |
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18,316 |
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29,284 |
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Prepaid costs and other |
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9,785 |
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13,896 |
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Total current assets |
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225,816 |
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217,258 |
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Property and equipment, at cost: |
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Oil and natural gas properties, successful efforts method |
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3,508,322 |
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3,358,004 |
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Accumulated depletion and depreciation |
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(572,562 |
) |
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(517,421 |
) |
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Total oil and natural gas properties, net |
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2,935,760 |
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2,840,583 |
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Other property and equipment, net |
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15,976 |
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15,706 |
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Total property and equipment, net |
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2,951,736 |
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2,856,289 |
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Deferred loan costs, net |
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19,636 |
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20,676 |
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Inventory |
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19,758 |
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16,255 |
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Intangible asset, net operating rights |
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36,135 |
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36,522 |
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Noncurrent derivative instruments |
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26,979 |
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23,614 |
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Other assets |
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473 |
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471 |
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Total assets |
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$ |
3,280,533 |
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$ |
3,171,085 |
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Liabilities and Stockholders Equity
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Current liabilities: |
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Accounts payable: |
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Trade |
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$ |
5,702 |
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$ |
15,443 |
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Related parties |
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348 |
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291 |
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Other current liabilities: |
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Bank overdrafts |
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3,415 |
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Revenue payable |
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39,169 |
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31,069 |
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Accrued and prepaid drilling costs |
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192,540 |
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164,282 |
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Derivative instruments |
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55,329 |
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62,419 |
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Other current liabilities |
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73,478 |
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60,095 |
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Total current liabilities |
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366,566 |
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337,014 |
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Long-term debt |
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625,928 |
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845,836 |
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Noncurrent derivative instruments |
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21,148 |
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29,337 |
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Deferred income taxes |
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616,649 |
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603,286 |
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Asset retirement obligations and other long-term liabilities |
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19,205 |
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20,184 |
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Commitments and contingencies (Note K) |
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Stockholders equity: |
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Common stock, $0.001 par value; 300,000,000 authorized; 91,555,423 and 85,815,926
shares issued at March 31, 2010 and December 31, 2009, respectively |
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92 |
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86 |
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Additional paid-in capital |
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1,257,674 |
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1,029,392 |
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Retained earnings |
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373,907 |
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306,367 |
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Treasury stock, at cost; 17,059 and 12,380 shares at March 31, 2010 and December 31, 2009,
respectively |
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(636 |
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(417 |
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Total stockholders equity |
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1,631,037 |
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1,335,428 |
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Total liabilities and stockholders equity |
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$ |
3,280,533 |
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$ |
3,171,085 |
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The accompanying notes are an integral part of these consolidated financial statements.
1
Concho Resources Inc.
Consolidated Statements of Operations
Unaudited
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Three Months Ended March 31, |
(in thousands, except per share amounts) |
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2010 |
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2009 |
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Operating revenues: |
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Oil sales |
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$ |
162,725 |
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$ |
64,974 |
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Natural gas sales |
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49,275 |
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21,028 |
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Total operating revenues |
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212,000 |
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86,002 |
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Operating costs and expenses: |
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Oil and natural gas production |
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36,700 |
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24,766 |
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Exploration and abandonments |
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1,295 |
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5,995 |
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Depreciation, depletion and amortization |
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53,843 |
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50,748 |
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Accretion of discount on asset retirement obligations |
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400 |
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278 |
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Impairments of long-lived assets |
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2,620 |
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4,056 |
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General and administrative (including non-cash stock-based
compensation of $2,831 and $1,925 for the three months ended
March 31, 2010 and 2009, respectively) |
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13,558 |
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11,746 |
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Bad debt expense |
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539 |
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(Gain) loss on derivatives not designated as hedges |
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(15,573 |
) |
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5,046 |
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Total operating costs and expenses |
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93,382 |
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102,635 |
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Income (loss) from operations |
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118,618 |
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(16,633 |
) |
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Other income (expense): |
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Interest expense |
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(11,065 |
) |
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(4,370 |
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Other, net |
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(73 |
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(328 |
) |
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Total other expense |
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(11,138 |
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(4,698 |
) |
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Income (loss) before income taxes |
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107,480 |
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(21,331 |
) |
Income tax benefit (expense) |
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(39,940 |
) |
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8,106 |
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Net income (loss) |
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$ |
67,540 |
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$ |
(13,225 |
) |
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Basic earnings per share: |
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Net income (loss) per share |
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$ |
0.76 |
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$ |
(0.16 |
) |
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Weighted average shares used in basic earnings per share |
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88,831 |
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84,529 |
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Diluted earnings per share: |
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Net income (loss) per share |
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$ |
0.75 |
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$ |
(0.16 |
) |
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Weighted average shares used in diluted earnings per share |
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90,130 |
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84,529 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
Concho Resources Inc.
Consolidated Statement of Stockholders Equity
Unaudited
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Additional |
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Total |
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Common Stock |
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Paid-in |
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Retained |
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Treasury Stock |
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Stockholders |
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(in thousands) |
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Shares |
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Amount |
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Capital |
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Earnings |
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Shares |
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Amount |
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Equity |
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BALANCE AT DECEMBER 31, 2009 |
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85,816 |
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$ |
86 |
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$ |
1,029,392 |
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$ |
306,367 |
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12 |
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$ |
(417 |
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$ |
1,335,428 |
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Net income |
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67,540 |
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67,540 |
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Issuance of common stock |
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5,348 |
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5 |
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219,456 |
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219,461 |
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Stock options exercised |
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248 |
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1 |
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2,497 |
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2,498 |
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Stock-based compensation for restricted stock |
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145 |
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1,822 |
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1,822 |
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Cancellation of restricted stock |
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(2 |
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Stock-based compensation for stock options |
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1,009 |
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1,009 |
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Excess tax benefits related to stock-based compensation |
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3,498 |
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3,498 |
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Purchase of treasury stock |
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5 |
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(219 |
) |
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(219 |
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BALANCE AT MARCH 31, 2010 |
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91,555 |
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$ |
92 |
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$ |
1,257,674 |
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$ |
373,907 |
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17 |
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$ |
(636 |
) |
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$ |
1,631,037 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
Concho Resources Inc.
Consolidated Statements of Cash Flows
Unaudited
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Three Months Ended March 31, |
(in thousands) |
|
2010 |
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2009 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
|
$ |
67,540 |
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$ |
(13,225 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation, depletion and amortization |
|
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53,843 |
|
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50,748 |
|
Impairments of long-lived assets |
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2,620 |
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|
4,056 |
|
Accretion of discount on asset retirement obligations |
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|
400 |
|
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|
278 |
|
Exploration and abandonments, including dry holes |
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|
627 |
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|
5,318 |
|
Non-cash compensation expense |
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2,831 |
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|
1,925 |
|
Bad debt expense |
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|
539 |
|
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Deferred income taxes |
|
|
27,829 |
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(10,871 |
) |
(Gain) loss on sale of assets |
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(17 |
) |
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|
243 |
|
(Gain) loss on derivatives not designated as hedges |
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(15,573 |
) |
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5,046 |
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Other non-cash items |
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1,140 |
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|
813 |
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Changes in operating assets and liabilities, net of acquisitions: |
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Accounts receivable |
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(15,963 |
) |
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(31,744 |
) |
Prepaid costs and other |
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5,372 |
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1,581 |
|
Inventory |
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(3,508 |
) |
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(2,371 |
) |
Accounts payable |
|
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(9,752 |
) |
|
|
15,203 |
|
Revenue payable |
|
|
8,100 |
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|
2,273 |
|
Other current liabilities |
|
|
11,199 |
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|
11,339 |
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Net cash provided by operating activities |
|
|
137,227 |
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|
40,612 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital expenditures on oil and natural gas properties |
|
|
(113,722 |
) |
|
|
(131,559 |
) |
Acquisition of oil and natural gas properties |
|
|
(10,356 |
) |
|
|
|
|
Additions to other property and equipment |
|
|
(1,168 |
) |
|
|
(1,078 |
) |
Proceeds from the sale of oil and natural gas properties and other assets |
|
|
790 |
|
|
|
1,000 |
|
Settlements received from (paid on) derivatives not designated as hedges |
|
|
(10,840 |
) |
|
|
37,124 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(135,296 |
) |
|
|
(94,513 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
109,500 |
|
|
|
100,650 |
|
Payments of long-term debt |
|
|
(329,500 |
) |
|
|
(59,900 |
) |
Net proceeds from issuance of common stock |
|
|
219,461 |
|
|
|
|
|
Exercise of stock options |
|
|
2,498 |
|
|
|
2,005 |
|
Excess tax benefit from stock-based compensation |
|
|
3,498 |
|
|
|
804 |
|
Purchase of treasury stock |
|
|
(219 |
) |
|
|
|
|
Bank overdrafts |
|
|
(3,415 |
) |
|
|
(5,003 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,823 |
|
|
|
38,556 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
3,754 |
|
|
|
(15,345 |
) |
Cash and cash equivalents at beginning of period |
|
|
3,234 |
|
|
|
17,752 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
6,988 |
|
|
$ |
2,407 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOWS: |
|
|
|
|
|
|
|
|
Cash paid for interest and fees, net of $18 and $15 capitalized interest |
|
$ |
3,729 |
|
|
$ |
3,457 |
|
Cash paid for income taxes |
|
$ |
9,808 |
|
|
$ |
1,065 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Note A. Organization and nature of operations
Concho Resources Inc. (the Company) is a Delaware corporation formed on February 22, 2006.
The Companys principal business is the acquisition, development and exploration of oil and natural
gas properties in the Permian Basin region of Southeast New Mexico and West Texas.
Note B. Summary of significant accounting policies
Principles of consolidation. The consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated.
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 are determined using estimates of proved oil and natural gas reserves. There are
numerous uncertainties inherent in the estimation of quantities of proved 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 and
commodity price outlooks. Other significant estimates include, but are not limited to, the asset
retirement obligations, fair value of derivative financial instruments, purchase price allocations
for business and oil and natural gas property acquisitions and fair value of stock-based
compensation.
Interim financial statements. The accompanying consolidated financial statements of the
Company have not been audited by the Companys independent registered public accounting firm,
except that the consolidated balance sheet at December 31, 2009 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 Companys financial
position at March 31, 2010, its results of operations and its cash flows for the three months ended
March 31, 2010 and 2009. 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 or omitted from these consolidated financial
statements. Accordingly, these consolidated financial statements should be read with the audited
consolidated financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended December 31, 2009.
Deferred loan costs. Deferred loan costs are stated at cost, net of amortization, which is
computed using the effective interest and straight-line methods. The Company had deferred loan
costs of $19.6 million and $20.7 million, net of accumulated amortization of $9.6 million and $8.6
million, at March 31, 2010 and December 31, 2009, respectively.
5
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Future amortization expense of deferred loan costs at March 31, 2010 is as follows:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Remaining 2010 |
|
$ |
3,150 |
|
2011 |
|
|
4,266 |
|
2012 |
|
|
4,350 |
|
2013 |
|
|
3,021 |
|
2014 |
|
|
1,132 |
|
Thereafter |
|
|
3,717 |
|
|
|
|
|
Total |
|
$ |
19,636 |
|
|
|
|
|
Intangible assets. The Company has capitalized certain operating rights acquired in 2008. The
gross operating rights of approximately $38.7 million and related accumulated amortization of $2.6
million, which have no residual value, are amortized over the estimated economic life of
approximately 25 years. Impairment will be assessed if indicators of potential impairment exist or
when there is a material change in the remaining useful economic life. Amortization expense for
both of the three months ended March 31, 2010 and 2009 was approximately $0.4 million. The
following table reflects the estimated aggregate amortization expense for each of the periods
presented below:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Remaining 2010 |
|
$ |
1,162 |
|
2011 |
|
|
1,549 |
|
2012 |
|
|
1,549 |
|
2013 |
|
|
1,549 |
|
2014 |
|
|
1,549 |
|
Thereafter |
|
|
28,777 |
|
|
|
|
|
Total |
|
$ |
36,135 |
|
|
|
|
|
Oil and natural gas sales and imbalances. Oil and natural gas revenues are recorded at the
time of delivery of such products to pipelines for the account of the purchaser or at the time of
physical transfer of such products to the purchaser. The Company follows the sales method of
accounting for oil and natural gas sales, recognizing revenues based on the Companys share of
actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas imbalances are
generated on properties for which two or more owners have the right to take production in-kind
and, in doing so, take more or less than their respective entitled percentage. Imbalances are
tracked by well, but the Company does not record any receivable from or payable to the other owners
unless the imbalance has reached a level at which it exceeds the remaining reserves in the
respective well. If reserves are insufficient to offset the imbalance and the Company is in an
overtake position, a liability is recorded for the amount of shortfall in reserves valued at a
contract price or the market price in effect at the time the imbalance is generated. If the Company
is in an undertake position, a receivable is recorded for an amount that is reasonably expected to
be received, not to exceed the current market value of such imbalance.
6
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
The following table reflects the Companys natural gas imbalance positions at March 31, 2010
and December 31, 2009 as well as amounts reflected in oil and natural gas production expense for
the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
Natural gas imbalance receivable (included in other assets) |
|
$ |
446 |
|
|
$ |
444 |
|
Undertake position (Mcf) |
|
|
99,016 |
|
|
|
98,584 |
|
|
|
|
|
|
|
|
|
|
Natural gas imbalance liability (included in asset retirement obligations and other
long-term liabilities) |
|
$ |
530 |
|
|
$ |
533 |
|
Overtake position (Mcf) |
|
|
100,426 |
|
|
|
101,278 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2010 |
|
|
2009 |
|
|
|
|
Value of net overtake (undertake) arising during the period increasing (decreasing)
oil and natural gas production expense |
|
$ |
(5 |
) |
|
$ |
49 |
|
Net overtake (undertake) position arising during the period (Mcf) |
|
|
(1,284 |
) |
|
|
11,766 |
|
Treasury stock. Treasury stock purchases are recorded at cost. Upon reissuance, the cost of
treasury shares held is reduced by the average purchase price per share of the aggregate treasury
shares held.
General and administrative expense. The Company receives fees for the operation of jointly
owned oil and natural gas properties and records such reimbursements as reductions of general and
administrative expense. Such fees totaled approximately $2.9 million and $2.7 million for the three
months ended March 31, 2010 and 2009, respectively.
Recent accounting pronouncements. In February 2010, the FASB issued an update to various
topics, which eliminated outdated provisions and inconsistencies in the Accounting Standards
Codification (the Codification), and clarified certain guidance to reflect the FASBs original
intent. The update is effective for the first reporting period, including interim periods,
beginning after issuance of the update, except for the amendments affecting embedded derivatives
and reorganizations. In addition to amending the Codification, the FASB made corresponding changes
to the legacy accounting literature to facilitate historical research. These changes are included
in an appendix to the update. The Company adopted the update effective January 1, 2010, and the
adoption did not have a significant impact on the Companys consolidated financial statements.
7
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Note C. Exploratory well costs
The Company capitalizes exploratory well costs until a determination is made that the well has
either found proved reserves or that it is impaired. The capitalized exploratory well costs are
presented in unproved properties in the consolidated balance sheets. If the exploratory well is
determined to be impaired, the well costs are charged to expense.
The following table reflects the Companys capitalized exploratory well activity during the
three months ended March 31, 2010:
|
|
|
|
|
|
|
Three Months Ended |
|
(in thousands) |
|
March 31, 2010 |
|
|
Beginning capitalized exploratory well costs |
|
$ |
8,668 |
|
Additions to exploratory well costs pending the determination of proved reserves |
|
|
30,335 |
|
Reclassifications due to determination of proved reserves |
|
|
(14,686 |
) |
Exploratory well costs charged to expense |
|
|
|
|
|
|
|
|
Ending capitalized exploratory well costs |
|
$ |
24,317 |
|
|
|
|
|
The following table provides an aging, at March 31, 2010 and December 31, 2009, of capitalized
exploratory well costs based on the date drilling was completed:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Wells in drilling progress |
|
$ |
6,378 |
|
|
$ |
1,767 |
|
Capitalized exploratory well costs that have been capitalized for a period of one year or less |
|
|
17,939 |
|
|
|
6,901 |
|
Capitalized exploratory well costs that have been capitalized for a period greater than one year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalized exploratory well costs |
|
$ |
24,317 |
|
|
$ |
8,668 |
|
|
|
|
|
|
|
|
At March 31, 2010, the Company had 26 gross exploratory wells waiting on their completion,
including 10 wells in the Texas Permian area, 11 wells in the New Mexico Permian area and 5 wells
in the Williston Basin of North Dakota.
Note D. Acquisitions
Wolfberry acquisitions. In December 2009, together with the acquisition of related additional
interests that closed in 2010, the Company closed two acquisitions (the Wolfberry Acquisitions) of
interests in producing and non-producing assets in the Wolfberry play in the Permian Basin for
approximately $270.7 million, subject to usual and customary post-closing adjustments. The
Wolfberry Acquisitions were primarily funded with borrowings under the Companys credit facility,
see Note J. The Companys 2009 results of operations do not include any production, revenues or
costs from the Wolfberry Acquisitions.
8
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
The following tables represent the allocation of the total purchase price of the Wolfberry
Acquisitions to the acquired assets and liabilities. The allocation represents the fair values
assigned to each of the assets acquired and liabilities assumed:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Fair value of the Wolfberry Acquisitions net assets: |
|
|
|
|
Proved oil and natural gas properties |
|
$ |
212,987 |
|
Unproved oil and natural gas properties |
|
|
58,222 |
|
|
|
|
|
Total assets acquired |
|
|
271,209 |
|
Asset retirement obligations |
|
|
(464 |
) |
|
|
|
|
Net purchase price |
|
$ |
270,745 |
|
|
|
|
|
Note E. Asset retirement obligations
The Companys asset retirement obligations represent the estimated present value of the
estimated cash flows the Company will incur to plug, abandon and remediate its producing properties
at the end of their productive lives, in accordance with applicable state laws. The Company does
not provide for a market risk premium associated with asset retirement obligations because a
reliable estimate cannot be determined. The Company has no assets that are legally restricted for
purposes of settling asset retirement obligations.
The following table summarizes the Companys asset retirement obligation transactions recorded
during the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Asset retirement obligations, beginning of period |
|
$ |
22,754 |
|
|
$ |
16,809 |
|
Liabilities incurred from new wells |
|
|
446 |
|
|
|
168 |
|
Accretion expense |
|
|
400 |
|
|
|
278 |
|
Disposition of wells |
|
|
|
|
|
|
(142 |
) |
Liabilities settled upon plugging and abandoning wells |
|
|
(185 |
) |
|
|
(10 |
) |
Revision of estimates |
|
|
(2,578 |
) |
|
|
1,151 |
|
|
|
|
|
|
|
|
Asset retirement obligations, end of period |
|
$ |
20,837 |
|
|
$ |
18,254 |
|
|
|
|
|
|
|
|
Note F. Stockholders equity
Equity issuance. On February 1, 2010, the Company issued 5,347,500 shares of its common stock
at $42.75 per share. After deducting underwriting discounts of approximately $9.1 million and
transaction costs, the Company received net proceeds of approximately $219.5 million. The net
proceeds from this offering were used to repay a portion of the borrowings under the Companys
credit facility.
Treasury stock. The restrictions on certain restricted stock awards issued to certain of the
Companys executive officers lapsed during the three months ended March 31, 2010. Immediately upon
the lapse of restrictions, these executive officers became liable for income taxes on the value of
such shares. In accordance with the Companys 2006 Stock Incentive Plan and the applicable
restricted
9
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
stock award agreements, some of such officers elected to deliver shares of the Companys
common stock to the Company in exchange
for cash used to satisfy such tax liability. In total, at March 31, 2010 and December 31,
2009, the Company had acquired 17,059 and 12,380 shares, respectively, that are held as treasury
stock in the approximate amounts of $636,000 and $417,000, respectively.
Note G. Incentive plans
Defined contribution plan. The Company sponsors a 401(k) defined contribution plan for the
benefit of substantially all employees and maintains certain other acquired plans. The Company
matches 100 percent of employee contributions, not to exceed 6 percent of the employees annual
salary. The Company contributions to the plans for the three months ended March 31, 2010 and 2009
were approximately $0.2 million and $0.3 million, respectively.
Stock incentive plan. The Companys 2006 Stock Incentive Plan (together with applicable stock
option agreements and restricted stock agreements, the Plan) provides for granting stock options
and restricted stock awards to employees and individuals associated with the Company. The
following table shows the number of existing awards and awards available under the Plan at March
31, 2010:
|
|
|
|
|
|
|
Number of |
|
|
Common Shares |
|
Approved and authorized awards |
|
|
5,850,000 |
|
Stock option grants, net of forfeitures |
|
|
(3,463,720 |
) |
Restricted stock grants, net of forfeitures |
|
|
(948,136 |
) |
|
|
|
|
|
Awards available for future grant |
|
|
1,438,144 |
|
|
|
|
|
|
Restricted stock awards. All restricted shares are treated as issued and outstanding in the
accompanying consolidated balance sheets. If an employee terminates employment prior the
restriction lapse date, the awarded shares are forfeited and cancelled and are no longer considered
issued and outstanding. A summary of the Companys restricted stock awards activity under the Plan
for the three months ended March 31, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Grant Date |
|
|
Restricted |
|
Fair Value |
|
|
Shares |
|
Per Share |
|
Restricted stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
497,257 |
|
|
|
|
|
Shares granted |
|
|
144,801 |
|
|
$ |
45.52 |
|
Shares cancelled / forteited |
|
|
(1,719 |
) |
|
|
|
|
Lapse of restrictions |
|
|
(42,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 |
|
|
597,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
The following table summarizes information about stock-based compensation for the Companys
restricted stock awards for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Grant date fair value for awards during the period: |
|
|
|
|
|
|
|
|
Employee grants |
|
$ |
1,590 |
|
|
$ |
|
|
Officer and director grants |
|
|
5,075 |
|
|
|
1,850 |
|
|
|
|
|
|
|
|
Total |
|
$ |
6,665 |
|
|
$ |
1,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense from restricted stock: |
|
|
|
|
|
|
|
|
Employee grants |
|
$ |
978 |
|
|
$ |
563 |
|
Officer and director grants |
|
|
844 |
|
|
|
334 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,822 |
|
|
$ |
897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes and other information: |
|
|
|
|
|
|
|
|
Income tax benefit related to restricted stock |
|
$ |
689 |
|
|
$ |
341 |
|
Deductions in current taxable income related to restricted stock |
|
$ |
1,707 |
|
|
$ |
378 |
|
Stock option awards. A summary of the Companys stock option awards activity under the Plan
for the three months ended March 31, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Number of |
|
Exercise |
|
|
Options |
|
Price |
|
Stock options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
2,156,503 |
|
|
$ |
14.11 |
|
Options granted |
|
|
|
|
|
$ |
|
|
Options exercised |
|
|
(248,915 |
) |
|
$ |
10.03 |
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 |
|
|
1,907,588 |
|
|
$ |
14.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at end of period |
|
|
1,347,376 |
|
|
$ |
12.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
935,160 |
|
|
$ |
14.03 |
|
|
|
|
|
|
|
|
|
|
11
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
The following table summarizes information about the Companys vested and exercisable stock
options outstanding at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
of Stock |
|
|
Contractual |
|
|
Exercise |
|
|
Intrinsic |
|
|
|
|
|
|
|
Options |
|
|
Life |
|
|
Price |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Vested options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price |
|
$ |
8.00 |
|
|
|
782,753 |
|
|
1.86 years |
|
$ |
8.00 |
|
|
$ |
33,157 |
|
Exercise price |
|
$ |
12.00 |
|
|
|
103,854 |
|
|
4.56 years |
|
$ |
12.00 |
|
|
|
3,984 |
|
Exercise price |
|
$ |
14.62 |
|
|
|
188,750 |
|
|
6.57 years |
|
$ |
14.62 |
|
|
|
6,745 |
|
Exercise price |
|
$ |
21.67 |
|
|
|
240,328 |
|
|
8.05 years |
|
$ |
21.67 |
|
|
|
6,895 |
|
Exercise price |
|
$ |
32.03 |
|
|
|
31,691 |
|
|
8.26 years |
|
$ |
32.03 |
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,347,376 |
|
|
3.98 years |
|
$ |
12.24 |
|
|
$ |
51,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price |
|
$ |
8.00 |
|
|
|
388,365 |
|
|
1.98 years |
|
$ |
8.00 |
|
|
$ |
16,451 |
|
Exercise price |
|
$ |
12.00 |
|
|
|
86,026 |
|
|
5.14 years |
|
$ |
12.00 |
|
|
|
3,300 |
|
Exercise price |
|
$ |
14.62 |
|
|
|
188,750 |
|
|
6.57 years |
|
$ |
14.62 |
|
|
|
6,745 |
|
Exercise price |
|
$ |
21.67 |
|
|
|
240,328 |
|
|
8.05 years |
|
$ |
21.67 |
|
|
|
6,895 |
|
Exercise price |
|
$ |
32.03 |
|
|
|
31,691 |
|
|
8.26 years |
|
$ |
32.03 |
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
935,160 |
|
|
4.97 years |
|
$ |
14.03 |
|
|
$ |
33,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
The following table summarizes information about stock-based compensation for stock options
for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Grant date fair value for awards during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee grants |
|
$ |
|
|
|
$ |
|
|
Officer and director grants |
|
|
|
|
|
|
1,454 |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
1,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense from stock options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee grants |
|
$ |
44 |
|
|
$ |
71 |
|
Officer and director grants |
|
|
965 |
|
|
|
957 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,009 |
|
|
$ |
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes and other information: |
|
|
|
|
|
|
|
|
Income tax benefit related to stock options |
|
$ |
381 |
|
|
$ |
391 |
|
Deductions in current taxable income related to stock options exercised |
|
$ |
9,651 |
|
|
$ |
3,040 |
|
The Company used the simplified method that is accepted by the SEC to calculate the expected
term for stock options granted during the three months ended March 31, 2009, since it did not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate expected
term due to the limited period of time its shares of common stock have been publicly traded.
Expected volatilities are based on a combination of historical and implied volatilities of
comparable companies.
Future stock-based compensation expense. Future stock-based compensation expense at March 31,
2010 is summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
Stock |
|
|
|
|
(in thousands) |
|
Stock |
|
|
Options |
|
|
Total |
|
|
Remaining 2010 |
|
$ |
6,012 |
|
|
$ |
1,643 |
|
|
$ |
7,655 |
|
2011 |
|
|
4,331 |
|
|
|
879 |
|
|
|
5,210 |
|
2012 |
|
|
1,669 |
|
|
|
184 |
|
|
|
1,853 |
|
2013 |
|
|
454 |
|
|
|
15 |
|
|
|
469 |
|
2014 |
|
|
48 |
|
|
|
1 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,514 |
|
|
$ |
2,722 |
|
|
$ |
15,236 |
|
|
|
|
|
|
|
|
|
|
|
13
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Note H. Disclosures about fair value of financial instruments
The Company uses a valuation framework based upon inputs that market participants use in
pricing an asset or liability, which are classified into two categories: observable inputs and
unobservable inputs. Observable inputs represent market data obtained from independent sources,
whereas unobservable inputs reflect a companys own market assumptions, which are used if
observable inputs are not reasonably available without undue cost and effort. These two types of
inputs are further prioritized into the following fair value input hierarchy:
|
Level 1: |
|
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities. The Company considers
active markets to be those in which transactions for the assets or liabilities occur in
sufficient frequency and volume to provide pricing information on an ongoing basis. |
|
Level 2: |
|
Quoted prices in markets that are not active, or inputs which are observable,
either directly or indirectly, for substantially the full term of the asset or liability.
This category includes those derivative instruments that the Company values using
observable market data. Substantially all of these inputs are observable in the
marketplace throughout the full term of the derivative instrument, can be derived from
observable data, or supported by observable levels at which transactions are executed in
the marketplace. Level 2 instruments primarily include non-exchange traded derivatives
such as over-the-counter commodity price swaps, basis swaps, investments and interest
rate swaps. The Companys valuation models are primarily industry-standard models that
consider various inputs including: (i) quoted forward prices for commodities, (ii) time
value and (iii) current market and contractual prices for the underlying instruments, as
well as other relevant economic measures. The Company utilizes its counterparties
valuations to assess the reasonableness of its prices and valuation techniques. |
|
Level 3: |
|
Measured based on prices or valuation models that require inputs that are both
significant to the fair value measurement and less observable from objective sources
(i.e., supported by little or no market activity). Level 3 instruments primarily include
derivative instruments, such as commodity price collars and floors, as well as
investments. The Companys valuation models are primarily industry-standard models that
consider various inputs including: (i) quoted forward prices for commodities, (ii) time
value, (iii) volatility factors and (iv) current market and contractual prices for the
underlying instruments, as well as other relevant economic measures. Although the
Company utilizes its counterparties valuations to assess the reasonableness of its
prices and valuation techniques, the Company does not have sufficient corroborating
market evidence to support classifying these assets and liabilities as Level 2. |
14
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
The fair value input hierarchy level to which an asset or liability measurement in its
entirety falls is determined based on the lowest level input that is significant to the measurement
in its entirety. The following table presents the Companys assets and liabilities that are
measured at fair value on a recurring basis at March 31, 2010, for each of the fair value hierarchy
levels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
Fair Value at |
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
March 31, |
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2010 |
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
$ |
|
|
|
$ |
66,850 |
|
|
$ |
|
|
|
$ |
66,850 |
|
Commodity derivative price collar contracts |
|
|
|
|
|
|
|
|
|
|
6,961 |
|
|
|
6,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,850 |
|
|
|
6,961 |
|
|
|
73,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
|
|
|
|
|
(100,913 |
) |
|
|
|
|
|
|
(100,913 |
) |
Commodity derivative basis swap contracts |
|
|
|
|
|
|
(8,605 |
) |
|
|
|
|
|
|
(8,605 |
) |
Interest rate derivative swap contracts |
|
|
|
|
|
|
(4,713 |
) |
|
|
|
|
|
|
(4,713 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,231 |
) |
|
|
|
|
|
|
(114,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial assets (liabilities) |
|
$ |
|
|
|
$ |
(47,381 |
) |
|
$ |
6,961 |
|
|
$ |
(40,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth a reconciliation of changes in the fair value of financial
assets (liabilities) classified as Level 3 in the fair value hierarchy:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
(945 |
) |
Realized and unrealized gains, net |
|
|
7,996 |
|
Settlements (receipts), net |
|
|
(90 |
) |
|
|
|
|
Balance at March 31, 2010 |
|
$ |
6,961 |
|
|
|
|
|
|
|
|
|
|
Total gains for the period included in earnings attributable to the change in unrealized gains relating to assets
(liabilities) still held at the reporting date |
|
$ |
7,906 |
|
|
|
|
|
15
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the carrying amounts and fair values of the Companys financial
instruments at March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
December 31, 2009 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
(in thousands) |
|
Value |
|
Value |
|
Value |
|
Value |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
36,057 |
|
|
$ |
36,057 |
|
|
$ |
24,923 |
|
|
$ |
24,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
76,477 |
|
|
$ |
76,477 |
|
|
$ |
91,756 |
|
|
$ |
91,756 |
|
Credit facility |
|
$ |
330,000 |
|
|
$ |
319,463 |
|
|
$ |
550,000 |
|
|
$ |
528,849 |
|
8.625% senior notes due 2017 |
|
$ |
295,928 |
|
|
$ |
318,000 |
|
|
$ |
295,836 |
|
|
$ |
315,000 |
|
Cash and cash equivalents, accounts receivable, other current assets, accounts payable,
interest payable and other current liabilities. The carrying amounts approximate fair value due to
the short maturity of these instruments.
Credit facility. The fair value of the Companys credit facility is estimated by discounting
the principal and interest payments at the Companys credit adjusted discount rate at the reporting
date.
Senior notes. The fair value of the Companys senior notes are based on quoted market prices.
16
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Derivative instruments. The fair value of the Companys derivative instruments are estimated
by management considering various factors, including closing exchange and over-the-counter
quotations and the time value of the underlying commitments. Financial assets and liabilities are
classified based on the lowest level of input that is significant to the fair value measurement.
The Companys assessment of the significance of a particular input to the fair value measurement
requires judgment, and may affect the valuation of the fair value of assets and liabilities and
their placement within the fair value hierarchy levels. The following table (i) summarizes the
valuation of each of the Companys financial instruments by required pricing levels and (ii)
summarizes the gross fair value by the appropriate balance sheet classification, even when the
derivative instruments are subject to netting arrangements and qualify for net presentation in the
Companys consolidated balance sheets at March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Total |
|
|
|
Quoted Prices in |
|
|
Other |
|
|
Significant |
|
|
Carrying Value |
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
at |
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
March 31, |
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2010 |
|
|
Assets (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
$ |
|
|
|
$ |
25,976 |
|
|
$ |
|
|
|
$ |
25,976 |
|
Commodity derivative price collar contracts |
|
|
|
|
|
|
|
|
|
|
6,961 |
|
|
|
6,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,976 |
|
|
|
6,961 |
|
|
|
32,937 |
|
Noncurrent: (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
|
|
|
|
|
40,874 |
|
|
|
|
|
|
|
40,874 |
|
Interest rate derivative swap contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,874 |
|
|
|
|
|
|
|
40,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
|
|
|
|
|
(69,307 |
) |
|
|
|
|
|
|
(69,307 |
) |
Commodity derivative basis swap contracts |
|
|
|
|
|
|
(5,675 |
) |
|
|
|
|
|
|
(5,675 |
) |
Interest rate derivative swap contracts |
|
|
|
|
|
|
(4,206 |
) |
|
|
|
|
|
|
(4,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,188 |
) |
|
|
|
|
|
|
(79,188 |
) |
Noncurrent: (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
|
|
|
|
|
(31,606 |
) |
|
|
|
|
|
|
(31,606 |
) |
Commodity derivative basis swap contracts |
|
|
|
|
|
|
(2,930 |
) |
|
|
|
|
|
|
(2,930 |
) |
Interest rate derivative swap contracts |
|
|
|
|
|
|
(507 |
) |
|
|
|
|
|
|
(507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,043 |
) |
|
|
|
|
|
|
(35,043 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial assets (liabilities) |
|
$ |
|
|
|
$ |
(47,381 |
) |
|
$ |
6,961 |
|
|
$ |
(40,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Total current financial assets (liabilities), gross basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(46,251 |
) |
(b) Total noncurrent financial assets (liabilities), gross basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial assets (liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(40,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Total |
|
|
|
Quoted Prices in |
|
|
Other |
|
|
Significant |
|
|
Carrying Value |
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
at |
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
December 31, |
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2009 |
|
|
Assets (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
$ |
|
|
|
$ |
13,850 |
|
|
$ |
|
|
|
$ |
13,850 |
|
Commodity derivative price collar contracts |
|
|
|
|
|
|
|
|
|
|
134 |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,850 |
|
|
|
134 |
|
|
|
13,984 |
|
Noncurrent: (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
|
|
|
|
|
35,016 |
|
|
|
|
|
|
|
35,016 |
|
Interest rate derivative swap contracts |
|
|
|
|
|
|
1,369 |
|
|
|
|
|
|
|
1,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,385 |
|
|
|
|
|
|
|
36,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
|
|
|
|
|
(65,351 |
) |
|
|
|
|
|
|
(65,351 |
) |
Commodity derivative basis swap contracts |
|
|
|
|
|
|
(5,254 |
) |
|
|
|
|
|
|
(5,254 |
) |
Interest rate derivative swap contracts |
|
|
|
|
|
|
(3,870 |
) |
|
|
|
|
|
|
(3,870 |
) |
Commodity derivative price collar contracts |
|
|
|
|
|
|
|
|
|
|
(619 |
) |
|
|
(619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74,475 |
) |
|
|
(619 |
) |
|
|
(75,094 |
) |
Noncurrent: (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative price swap contracts |
|
|
|
|
|
|
(38,259 |
) |
|
|
|
|
|
|
(38,259 |
) |
Commodity derivative basis swap contracts |
|
|
|
|
|
|
(3,389 |
) |
|
|
|
|
|
|
(3,389 |
) |
Commodity derivative price collar contracts |
|
|
|
|
|
|
|
|
|
|
(460 |
) |
|
|
(460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,648 |
) |
|
|
(460 |
) |
|
|
(42,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial assets (liabilities) |
|
$ |
|
|
|
$ |
(65,888 |
) |
|
$ |
(945 |
) |
|
$ |
(66,833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Total current financial assets (liabilities), gross basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(61,110 |
) |
(b) Total noncurrent financial assets (liabilities),
gross basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial assets (liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(66,833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The fair value of derivative instruments reported in the Companys consolidated balance
sheets are subject to netting arrangements and qualify for net presentation. The following
table reports the net basis derivative fair values as reported in the consolidated balance
sheets at March 31, 2010 and December 31, 2009: |
18
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Consolidated Balance Sheet Classification: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current derivative contracts: |
|
|
|
|
|
|
|
|
Assets |
|
$ |
9,078 |
|
|
$ |
1,309 |
|
Liabilities |
|
|
(55,329 |
) |
|
|
(62,419 |
) |
|
|
|
|
|
|
|
Net current |
|
$ |
(46,251 |
) |
|
$ |
(61,110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent derivative contracts: |
|
|
|
|
|
|
|
|
Assets |
|
$ |
26,979 |
|
|
$ |
23,614 |
|
Liabilities |
|
|
(21,148 |
) |
|
|
(29,337 |
) |
|
|
|
|
|
|
|
Net noncurrent |
|
$ |
5,831 |
|
|
$ |
(5,723 |
) |
|
|
|
|
|
|
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are reported at fair value on a nonrecurring basis in the
Companys consolidated balance sheets. The following methods and assumptions were used to estimate
the fair values:
Impairments of long-lived assets The Company reviews its long-lived assets to be held and
used, including proved oil and natural gas properties, whenever events or circumstances indicate
that the carrying value of those assets may not be recoverable. An impairment loss is indicated if
the sum of the expected undiscounted future net cash flows is less than the carrying amount of the
assets. In that circumstance, the Company recognizes an impairment loss for the amount by which the
carrying amount of the asset exceeds the estimated fair value of the asset. The Company reviews its
oil and natural gas properties by amortization base or by individual well for those wells not
constituting part of an amortization base. For each property determined to be impaired, an
impairment loss equal to the difference between the carrying value of the properties and the
estimated fair value (discounted future cash flows) of the properties would be recognized at that
time. Estimating future cash flows involves the use of judgments, including estimation of the
proved and unproved oil and natural gas reserve quantities, timing of development and production,
expected future commodity prices, capital expenditures and production costs.
The Company periodically reviews its proved oil and natural gas properties that are sensitive
to oil and natural gas prices for impairment. Due primarily to downward adjustments to the
economically recoverable resource potential associated with declines in commodity prices and well
performance, the Company recognized impairment expense of $2.4 million and $4.1 million for the
three months ended March 31, 2010 and 2009, respectively, related to its proved oil and natural gas
properties. The following table reports the carrying amounts, estimated fair values and impairment
expense of long-lived assets for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
Estimated |
|
Impairment |
(in thousands) |
|
Amount |
|
Fair Value |
|
Expense |
|
Three months ended March 31, 2010 |
|
$ |
5,892 |
|
|
$ |
3,272 |
|
|
$ |
2,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2009 |
|
$ |
6,943 |
|
|
$ |
2,887 |
|
|
$ |
4,056 |
|
Asset Retirement Obligations The Company estimates the fair value of asset retirement
obligations based on discounted cash flow projections using numerous estimates, assumptions and
judgments regarding such factors as the existence of a legal obligation for an asset retirement
obligation; amounts and timing of settlements; the credit-adjusted risk-free rate to be used; and
inflation rates. See Note E for a summary of changes in asset retirement obligations.
19
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Measurement information for assets that are measured at fair value on a nonrecurring basis was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
Quoted Prices in |
|
Other |
|
Significant |
|
|
|
|
Active Markets for |
|
Observable |
|
Unobservable |
|
Total |
|
|
Identical Assets |
|
Inputs |
|
Inputs |
|
Impairment |
(in thousands) |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Loss |
|
Three months ended March 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,272 |
|
|
$ |
(2,620 |
) |
Asset retirement obligations incurred in current period |
|
|
|
|
|
|
|
|
|
|
446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,887 |
|
|
$ |
(4,056 |
) |
Asset retirement obligations incurred in current period |
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
|
|
Note I. Derivative financial instruments
The Company uses derivative financial contracts to manage exposures to commodity price and
interest rate fluctuations. Commodity hedges are used to (i) reduce the effect of the volatility of
price changes on the oil and natural gas the Company produces and sells, (ii) support the Companys
capital budget and expenditure plans and (iii) support the economics associated with acquisitions.
Interest rate hedges are used to mitigate the cash flow risk associated with rising interest rates.
The Company does not enter into derivative financial instruments for speculative or trading
purposes. The Company also may enter into physical delivery contracts to effectively provide
commodity price hedges. Because these contracts are not expected to be net cash settled, they are
considered to be normal sales contracts and not derivatives. Therefore, these contracts are not
recorded in the Companys consolidated financial statements.
Currently, the Company does not designate its derivative instruments to qualify for hedge
accounting. Accordingly, the Company reflects changes in the fair value of its derivative
instruments in its statements of operations.
20
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
New commodity derivative contracts in the first quarter of 2010. During the three months
ended March 31, 2010, the Company entered into additional commodity derivative contracts to hedge a
portion of its estimated future production. The following table summarizes information about these
additional commodity derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
Index |
|
Contract |
|
|
Volume |
|
Price |
|
Period |
Oil (volumes in Bbls): |
|
|
|
|
|
|
|
|
|
|
|
|
Price swap |
|
|
670,000 |
|
|
$ |
83.72 |
(a) |
|
|
1/1/10 - 12/31/10 |
|
Price swap |
|
|
195,000 |
|
|
$ |
76.85 |
(a) |
|
|
3/1/10 - 12/31/10 |
|
Price swap |
|
|
792,000 |
|
|
$ |
81.77 |
(a) |
|
|
1/1/11 - 12/31/11 |
|
Price swap |
|
|
168,000 |
|
|
$ |
89.00 |
(a) |
|
|
1/1/12 - 12/31/12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (volumes in MMBtus): |
|
|
|
|
|
|
|
|
|
|
|
|
Price swap |
|
|
418,000 |
|
|
$ |
5.99 |
(b) |
|
|
2/1/10 - 12/31/10 |
|
Price swap |
|
|
1,250,000 |
|
|
$ |
5.55 |
(b) |
|
|
3/1/10 - 12/31/10 |
|
Price swap |
|
|
5,076,000 |
|
|
$ |
6.14 |
(b) |
|
|
1/1/11 - 12/31/11 |
|
Price swap |
|
|
300,000 |
|
|
$ |
6.54 |
(b) |
|
|
1/1/12 - 12/31/12 |
|
|
|
|
(a) |
|
The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate
monthly average futures price. |
|
(b) |
|
The index prices for the natural gas price swaps are based on the NYMEX-Henry Hub last trading
day futures price. |
21
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Commodity derivative contracts at March 31, 2010. The following table sets forth the Companys
outstanding commodity derivative contracts at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Total |
|
Oil Swaps: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbl) |
|
|
|
|
|
|
1,387,936 |
|
|
|
1,263,936 |
|
|
|
1,172,936 |
|
|
|
3,824,808 |
|
Price per Bbl |
|
|
|
|
|
$ |
71.81 |
|
|
$ |
71.59 |
|
|
$ |
71.42 |
|
|
$ |
71.61 |
|
2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbl) |
|
|
1,042,436 |
|
|
|
1,003,436 |
|
|
|
968,436 |
|
|
|
936,436 |
|
|
|
3,950,744 |
|
Price per Bbl |
|
$ |
78.10 |
|
|
$ |
78.30 |
|
|
$ |
78.49 |
|
|
$ |
78.68 |
|
|
$ |
78.38 |
|
2012: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bbl) |
|
|
168,000 |
|
|
|
168,000 |
|
|
|
168,000 |
|
|
|
168,000 |
|
|
|
672,000 |
|
Price per Bbl |
|
$ |
118.10 |
|
|
$ |
118.10 |
|
|
$ |
118.10 |
|
|
$ |
118.10 |
|
|
$ |
118.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Swaps: (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu) |
|
|
|
|
|
|
2,647,000 |
|
|
|
2,427,000 |
|
|
|
2,258,000 |
|
|
|
7,332,000 |
|
Price per MMBtu |
|
|
|
|
|
$ |
6.03 |
|
|
$ |
6.03 |
|
|
$ |
6.03 |
|
|
$ |
6.03 |
|
2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu) |
|
|
1,569,000 |
|
|
|
3,069,000 |
|
|
|
3,069,000 |
|
|
|
3,069,000 |
|
|
|
10,776,000 |
|
Price per MMBtu |
|
$ |
6.36 |
|
|
$ |
6.62 |
|
|
$ |
6.62 |
|
|
$ |
6.62 |
|
|
$ |
6.58 |
|
2012: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu) |
|
|
75,000 |
|
|
|
75,000 |
|
|
|
75,000 |
|
|
|
75,000 |
|
|
|
300,000 |
|
Price per MMBtu |
|
$ |
6.54 |
|
|
$ |
6.54 |
|
|
$ |
6.54 |
|
|
$ |
6.54 |
|
|
$ |
6.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Collars: (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu) |
|
|
|
|
|
|
1,500,000 |
|
|
|
1,500,000 |
|
|
|
1,500,000 |
|
|
|
4,500,000 |
|
Price per MMBtu |
|
|
|
|
|
$ |
5.25 - $5.75 |
|
|
$ |
5.25 - $5.75 |
|
|
$ |
6.00 - $6.80 |
|
|
$ |
5.50 - $6.10 |
|
2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu) |
|
|
1,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
Price per MMBtu |
|
$ |
6.00 - $6.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.00 - $6.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Basis Swaps: (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu) |
|
|
|
|
|
|
2,100,000 |
|
|
|
2,100,000 |
|
|
|
2,100,000 |
|
|
|
6,300,000 |
|
Price per MMBtu |
|
|
|
|
|
$ |
0.85 |
|
|
$ |
0.85 |
|
|
$ |
0.85 |
|
|
$ |
0.85 |
|
2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (MMBtu) |
|
|
1,800,000 |
|
|
|
1,800,000 |
|
|
|
1,800,000 |
|
|
|
1,800,000 |
|
|
|
7,200,000 |
|
Price per MMBtu |
|
$ |
0.87 |
|
|
$ |
0.76 |
|
|
$ |
0.76 |
|
|
$ |
0.76 |
|
|
$ |
0.79 |
|
|
|
|
(a) |
|
The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate
monthly average futures price. |
|
(b) |
|
The index prices for the natural gas price swaps and collars are based on the NYMEX-Henry Hub
last trading day futures price. |
|
(c) |
|
The basis differential between the El Paso Permian delivery point and NYMEX Henry Hub delivery
point. |
22
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Interest rate derivative contracts. The Company has an interest rate swap which fixes the
LIBOR interest rate on $300 million of the Companys bank debt at 1.90 percent for three years
beginning in May of 2009. For this portion of the Companys bank debt, the all-in interest rate
will be calculated by adding the fixed rate of 1.90 percent to a margin that ranges from 2.00
percent to 3.00 percent, depending on the amount of bank debt outstanding.
The following table summarizes the gains and losses reported in earnings related to the
commodity and interest rate derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Gain (loss) on derivatives not designated as hedges: |
|
|
|
|
|
|
|
|
Cash (payments on) receipts from derivatives not designated as hedges: |
|
|
|
|
|
|
|
|
Commodity derivatives: |
|
|
|
|
|
|
|
|
Oil |
|
$ |
(10,133 |
) |
|
$ |
34,584 |
|
Natural gas |
|
|
506 |
|
|
|
2,540 |
|
Interest rate derivatives |
|
|
(1,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market gain (loss): |
|
|
|
|
|
|
|
|
Commodity derivatives: |
|
|
|
|
|
|
|
|
Oil |
|
|
1,438 |
|
|
|
(39,037 |
) |
Natural gas |
|
|
27,187 |
|
|
|
(706 |
) |
Interest rate derivatives |
|
|
(2,212 |
) |
|
|
(2,427 |
) |
|
|
|
|
|
|
|
Total gain (loss) on derivatives not designated as hedges |
|
$ |
15,573 |
|
|
$ |
(5,046 |
) |
|
|
|
|
|
|
|
All of the Companys commodity derivative contracts at March 31, 2010 are expected to settle
by December 31, 2012.
Second quarter 2010 commodity derivative contracts. In April 2010, the Company entered into
the following oil price swaps to hedge an additional portion of its estimated future production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
Index |
|
Contract |
|
|
Volume |
|
Price |
|
Period |
|
Oil (volumes in Bbls): |
|
|
|
|
|
|
|
|
|
|
|
|
Price swap |
|
|
1,463,000 |
|
|
$ |
88.63 |
(a) |
|
|
5/1/10 - 12/31/10 |
|
Price swap |
|
|
1,344,000 |
|
|
$ |
92.25 |
(a) |
|
|
1/1/11 - 12/31/11 |
|
Price swap |
|
|
2,040,000 |
|
|
$ |
92.98 |
(a) |
|
|
1/1/12 - 12/31/12 |
|
|
|
|
(a) |
|
The index price for the oil price swap is based on the NYMEX-West Texas Intermediate monthly
average futures price. |
23
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Note J. Debt
The Companys debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Credit facility |
|
$ |
330,000 |
|
|
$ |
550,000 |
|
8.625% unsecured senior notes due 2017 |
|
|
300,000 |
|
|
|
300,000 |
|
Less: unamortized original issue discount |
|
|
(4,072 |
) |
|
|
(4,164 |
) |
Less: current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
625,928 |
|
|
$ |
845,836 |
|
|
|
|
|
|
|
|
Credit facility. The Companys credit facility, as amended, (the Credit Facility) has a
maturity date of July 31, 2013. At March 31, 2010, the Company had letters of credit outstanding
under the Credit Facility of approximately $25,000, and its availability to borrow additional funds
was approximately $625.9 million based on its borrowing base at the time of $955.9 million. In
April 2010, the lenders increased the Companys borrowing base to $1.2 billion until the next
scheduled borrowing base redetermination in October 2010. Between scheduled borrowing base
redeterminations, the Company and, if requested by 66 2/3 percent of the lenders, the lenders, may
each request one special redetermination.
Advances on the Credit Facility bear interest, at the Companys option, based on (i) the prime
rate of JPMorgan Chase Bank (JPM Prime Rate) (3.25 percent at March 31, 2010) or (ii) a
Eurodollar rate (substantially equal to the London Interbank Offered Rate). At March 31, 2010, the
interest rates of Eurodollar rate advances and JPM Prime Rate advances vary, with interest margins
ranging from 200 to 300 basis points and 112.5 to 212.5 basis points, respectively, per annum
depending on the debt balance outstanding. At March 31, 2010, the Company pays commitment fees on
the unused portion of the available borrowing base of 50 basis points per annum.
The Credit Facility also includes a same-day advance facility under which the Company may
borrow funds from the administrative agent. Same-day advances cannot exceed $25 million and the
maturity dates cannot exceed fourteen days. The interest rate on this facility is the JPM Prime
Rate plus the applicable interest margin.
The Companys obligations under the Credit Facility are secured by a first lien on
substantially all of the Companys oil and natural gas properties. In addition, all of the
Companys subsidiaries are guarantors and all general partner, limited partner and membership
interests in the Companys subsidiaries owned by the Company have been pledged to secure borrowings
under the Credit Facility. The credit agreement contains various restrictive covenants and
compliance requirements which include (a) maintenance of certain financial ratios, including (i) a
quarterly ratio of total debt to consolidated earnings before interest expense, income taxes,
depletion, depreciation, and amortization, exploration expense and other noncash income and
expenses to be no greater than 4.0 to 1.0, and (ii) a ratio of current assets to current
liabilities, excluding noncash assets and liabilities related to financial derivatives and asset
retirement obligations and including the unfunded amounts under the Credit Facility, to be no less
than 1.0 to 1.0; (b) limits on the incurrence of additional indebtedness and certain types of
liens; (c) restrictions as to mergers, combinations and dispositions of assets; and (d)
restrictions on the payment of cash dividends. At March 31, 2010, the Company was in compliance
with its covenants under the Credit Facility.
8.625% unsecured senior notes. On September 18, 2009, the Company completed its public
offering of $300 million aggregate principal amount of 8.625% senior notes due 2017 (the Senior
Notes). The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by
all of the Companys subsidiaries.
The Senior Notes will mature on October 1, 2017, and interest is payable on the Senior Notes
each April 1 and October 1. The Company received net proceeds of $288.2 million (net of related
estimated offering costs), which were used to repay a portion of the outstanding borrowings under
the Credit Facility.
24
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
The Company may redeem some or all of the Senior Notes at any time on or after October 1, 2013
at the redemption prices specified in the indenture governing the Senior Notes. The Company may
also redeem up to 35 percent of the Senior Notes using all or a portion of the net proceeds of
certain public sales of equity interests completed before October 1, 2012 at a redemption price as
specified in the indenture. If the Company sells certain assets or experiences specific kinds of
change of control, each as described in the indenture, each holder of the Senior Notes will have
the right to require the Company to repurchase the Senior Notes at a purchase price described in
the indenture plus accrued and unpaid interest, if any, to the date of repurchase. At March 31,
2010, the Company was in compliance with its covenants in the indenture.
Future interest expense from the original issue discount at March 31, 2010 is as follows:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Remaining 2010 |
|
$ |
292 |
|
2011 |
|
|
421 |
|
2012 |
|
|
462 |
|
2013 |
|
|
507 |
|
2014 |
|
|
557 |
|
Thereafter |
|
|
1,833 |
|
|
|
|
|
Total |
|
$ |
4,072 |
|
|
|
|
|
Principal maturities of debt. Principal maturities of debt outstanding at March 31, 2010 are
as follows:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
2010 |
|
$ |
|
|
2011 |
|
|
|
|
2012 |
|
|
|
|
2013 |
|
|
330,000 |
|
2014 and thereafter |
|
|
300,000 |
|
|
|
|
|
Total |
|
$ |
630,000 |
|
|
|
|
|
25
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Interest expense. The following amounts have been incurred and charged to interest expense
for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Cash payments for interest |
|
$ |
3,747 |
|
|
$ |
3,472 |
|
Amortization of original issue discount |
|
|
92 |
|
|
|
|
|
Amortization of deferred loan origination costs |
|
|
1,040 |
|
|
|
856 |
|
Net changes in accruals |
|
|
6,204 |
|
|
|
57 |
|
|
|
|
|
|
|
|
Interest costs incurred |
|
|
11,083 |
|
|
|
4,385 |
|
Less: capitalized interest |
|
|
(18 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
Total interest expense |
|
$ |
11,065 |
|
|
$ |
4,370 |
|
|
|
|
|
|
|
|
26
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Note K. Commitments and contingencies
Severance agreements. The Company has entered into severance and change in control agreements
with all of its officers. The current annual salaries for the Companys officers covered under
such agreements total approximately $2.1 million.
Indemnifications. The Company has agreed to indemnify its directors and officers for claims
and damages arising from certain acts or omissions taken in such capacity.
Legal actions. The Company is a party to proceedings and claims incidental to its business.
While many of these matters involve inherent uncertainty, the Company believes that the amount of
the liability, if any, ultimately incurred with respect to any such proceedings or claims will not
have a material adverse effect on the Companys consolidated financial position as a whole or on
its liquidity, capital resources or future results of operations. The Company will continue to
evaluate proceedings and claims involving the Company on a quarter-by-quarter basis and will
establish and adjust any reserves as appropriate to reflect its assessment of the then current
status of the matters.
Acquisition commitments. In connection with the July 2008 acquisition of Henry Petroleum LP
and certain entities and individuals affiliated with Henry Petroleum LP (collectively the Henry
Entities), the Company agreed to pay certain employees, who were formerly employed by the Henry
Entities, bonuses of approximately $11.0 million in the aggregate at each of the first and second
anniversaries of the closing of the acquisition. Except as described below, these employees must
remain employed with the Company to receive the bonus. A former Henry Entities employee who is
otherwise entitled to a full bonus will receive the full bonus (i) if the Company terminates the
employee without cause, (ii) upon the death or disability of such employee or (iii) upon a change
in control of the Company. If any such employee resigns or is terminated for cause, the employee
will not receive the bonus and, subject to certain conditions, the Company will be required to
reimburse the sellers in the acquisition of the Henry Entities 65 percent of the bonus amount not
paid to the employee. The Company reflects the bonus amounts to be paid to these employees as a
period cost, which is included in the Companys results of operations over the period earned.
Amounts that ultimately are determined to be paid to the sellers are treated as a contingent
purchase price and reflected as an adjustment to the purchase price. During the three months ended
March 31, 2010 and 2009, the Company recognized $2.5 million and $2.6 million, respectively, of
this obligation in its results of operations.
Daywork commitments. The Company periodically enters into contractual arrangements under
which the Company is committed to expend funds to drill wells in the future, including agreements
to secure drilling rig services, which require the Company to make future minimum payments to the
rig operators. The Company records drilling commitments in the periods in which well capital is
incurred or rig services are provided. The following table summarizes the Companys future
drilling commitments at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period |
|
|
|
|
|
|
|
Less than |
|
|
1 - 3 |
|
|
3 - 5 |
|
|
More than |
|
(in thousands) |
|
Total |
|
|
1 year |
|
|
years |
|
|
years |
|
|
5 years |
|
|
Daywork drilling contracts with related parties (a) |
|
$ |
1,000 |
|
|
$ |
1,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Daywork drilling contracts assumed in the Henry Entities acquisition (b) |
|
|
421 |
|
|
|
421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual drilling commitments |
|
$ |
1,421 |
|
|
$ |
1,421 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Consists of daywork drilling contracts with Silver Oak Drilling, LLC, an affiliate
of Chase Oil Corporation, a stockholder of the Company. |
|
(b) |
|
A major oil and natural gas company which owns an interest in the wells being
drilled and the Company are parties to these contracts. Only the Companys 25 percent share of
the contract obligation has been reflected above. |
27
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Operating leases. The Company leases vehicles, equipment and office facilities under
non-cancellable operating leases. Lease payments associated with these operating leases for the
three months ended March 31, 2010 and 2009 were approximately $591,000 and $671,000, respectively.
Future minimum lease commitments under non-cancellable operating leases at March 31, 2010 are as
follows:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Remaining 2010 |
|
$ |
1,700 |
|
2011 |
|
|
1,734 |
|
2012 |
|
|
1,299 |
|
2013 |
|
|
1,170 |
|
2014 and thereafter |
|
|
3,518 |
|
|
|
|
|
Total |
|
$ |
9,421 |
|
|
|
|
|
Note L. Income taxes
The Company uses an asset and liability approach for financial accounting and reporting for
income taxes. The Companys objectives of accounting for income taxes are to recognize (i) the
amount of taxes payable or refundable for the current year and (ii) deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in its financial
statements or tax returns. The Company and its subsidiaries file a federal corporate income tax
return on a consolidated basis. The tax returns and the amount of taxable income or loss are
subject to examination by federal and state taxing authorities.
The Company continually assesses both positive and negative evidence to determine whether it
is more likely than not that deferred tax assets can be realized prior to their expiration.
Management monitors Company-specific, oil and natural gas industry and worldwide economic factors
and assesses the likelihood that the Companys net operating loss carryforwards (NOLs) and other
deferred tax attributes in the United States, state, and local tax jurisdictions will be utilized
prior to their expiration. At March 31, 2010, the Company had no valuation allowances related to
its deferred tax assets.
At March 31, 2010, the Company did not have any significant uncertain tax positions requiring
recognition in the financial statements. The tax years 2004 through 2009 remain subject to
examination by the major tax jurisdictions.
The Companys provision for income taxes differed from the U.S. statutory rate of 35 percent
primarily due to state income taxes and non-deductible expenses. The effective income tax rate for
the three months ended March 31, 2010 and 2009 was 37.2 percent and 38.0 percent, respectively.
28
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Income tax provision. The Companys income tax provision (benefit) and amounts separately
allocated were attributable to the following items for the three months ended March 31, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Income (loss) from operations |
|
$ |
39,940 |
|
|
$ |
(8,106 |
) |
|
|
|
|
|
|
|
|
|
Changes in stockholders equity: |
|
|
|
|
|
|
|
|
Excess tax benefits related to stock-based compensation |
|
|
(3,498 |
) |
|
|
(804 |
) |
|
|
|
|
|
|
|
|
|
$ |
36,442 |
|
|
$ |
(8,910 |
) |
|
|
|
|
|
|
|
The Companys income tax provision (benefit) attributable to income (loss) from operations
consisted of the following for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Current: |
|
|
|
|
|
|
|
|
U.S. federal |
|
$ |
10,878 |
|
|
$ |
2,438 |
|
U.S. state and local |
|
|
1,233 |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
12,111 |
|
|
|
2,765 |
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
U.S. federal |
|
|
24,681 |
|
|
|
(9,585 |
) |
U.S. state and local |
|
|
3,148 |
|
|
|
(1,286 |
) |
|
|
|
|
|
|
|
|
|
|
27,829 |
|
|
|
(10,871 |
) |
|
|
|
|
|
|
|
|
|
$ |
39,940 |
|
|
$ |
(8,106 |
) |
|
|
|
|
|
|
|
The reconciliation between the tax expense computed by multiplying pretax income by the U.S.
federal statutory rate and the reported amounts of income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Income (loss) at U.S. federal statutory rate |
|
$ |
37,618 |
|
|
$ |
(7,466 |
) |
State income taxes (net of federal tax effect) |
|
|
2,848 |
|
|
|
(623 |
) |
Statutory depletion |
|
|
(223 |
) |
|
|
|
|
Nondeductible expense & other |
|
|
(303 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
39,940 |
|
|
$ |
(8,106 |
) |
|
|
|
|
|
|
|
29
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Note M. Related parties
Consulting Agreement. On June 30, 2009, Steven L. Beal, the Companys then President and
Chief Operating Officer, retired from such positions. On June 9, 2009, the Company entered into a
consulting agreement (the Consulting Agreement) with Mr. Beal, under which Mr. Beal began serving
as a consultant to the Company on July 1, 2009. Either the Company or Mr. Beal may terminate the
consulting relationship at any time by giving ninety days written notice to the other party;
however, the Company may terminate the relationship immediately for cause. During the term of the
consulting relationship, Mr. Beal will receive a consulting fee of $20,000 per month and a monthly
reimbursement for his medical and dental coverage costs. If Mr. Beal dies during the term of the
Consulting Agreement, his estate will receive a $60,000 lump sum payment. As part of the
consulting agreement, certain of Mr. Beals stock-based awards were modified to permit vesting and
exercise under the original terms of the stock-based awards as if Mr. Beal were still an employee
of the Company while he is performing consulting services for the Company.
Mack Energy Corporation transactions. The Company incurred charges from Mack Energy
Corporation (MEC), an affiliate of Chase Oil Corporation (Chase Oil), a stockholder of the
Company, of approximately $0.4 million and $0.3 million for the three months ended March 31, 2010
and 2009, respectively, for services rendered in the ordinary course of business.
The Company had $113,000 and $87,000 in outstanding receivables due from MEC at March 31, 2010
and December 31, 2009, respectively, which are reflected in accounts receivable related parties
in the accompanying consolidated balance sheets. The Company had no outstanding payables to MEC at
March 31, 2010 and $9,000 in outstanding payables to MEC at December 31, 2009, which are reflected
in accounts payable related parties in the accompanying consolidated balance sheets.
Saltwater disposal services agreement. Among the assets the Company acquired from Chase Oil
is an undivided interest in a saltwater gathering and disposal system, which is owned and
maintained under a written agreement among the Company and Chase Oil and certain of its affiliates,
and under which the Company as operator gathers and disposes of produced water. The system is owned
jointly by the Company and Chase Oil and its affiliates in undivided ownership percentages, which
are annually redetermined as of January 1 on the basis of each partys percentage contribution of
the total volume of produced water disposed of through the system during the prior calendar year.
As of January 1, 2010, the Company owned 97.5% of the system and Chase Oil and its affiliates owned
2.5%.
Other related party transactions. The Company also has engaged in transactions with certain
other affiliates of Chase Oil, including a drilling contractor, an oilfield services company, a
supply company, a drilling fluids supply company, a pipe and tubing supplier, a fixed base operator
of aircraft services and a software company.
The Company incurred charges from these related party vendors of approximately $4.0 million
and $6.4 million for the three months ended March 31, 2010 and 2009, respectively.
The Company had no outstanding invoices payable to the other related party vendors identified
above at March 31, 2010 or December 31, 2009.
Overriding royalty and royalty interests. Certain affiliates of Chase Oil own overriding
royalty interests in certain of the Companys properties. The amount paid attributable to such
interests was approximately $0.5 million and $0.2 million for the three months ended March 31, 2010
and 2009, respectively. The Company owed royalty payments of approximately $301,000 and $80,000 to
these affiliates of Chase Oil at March 31, 2010 and December 31, 2009, respectively. These amounts
are reflected in accounts payable related parties in the accompanying consolidated balance
sheets.
Royalties are paid on certain properties located in Andrews County, Texas to a partnership of
which one of the Companys directors is the General Partner and owns a 3.5 percent partnership
interest. The Company paid approximately $41,000 and $26,000 for the three months ended March 31,
2010 and 2009, respectively. The Company owed this partnership royalty payments of approximately
$12,000 at both March 31, 2010 and December 31, 2009. These amounts are reflected in accounts
payable related parties in the accompanying consolidated balance sheets.
30
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Working interests owned by employees. The Company purchased oil and natural gas properties
from third parties in which employees of the Company owned a working interest. The following table
summarizes the Companys activities with these employees:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(in thousands) |
|
2010 |
|
2009 |
|
Revenues distributed to employees |
|
$ |
78 |
|
|
$ |
30 |
|
Joint interest payments received from employees |
|
$ |
230 |
|
|
$ |
639 |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2010 |
|
2009 |
Amounts included in accounts receivable related parties |
|
$ |
172 |
|
|
$ |
128 |
|
Amounts included in accounts payable related parties |
|
$ |
15 |
|
|
$ |
13 |
|
Note N. Net income (loss) per share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted
average number of common shares treated as outstanding for the period.
The computation of diluted income (loss) per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock that are dilutive to income (loss)
were exercised or converted into common stock or resulted in the issuance of common stock that
would then share in the earnings of the Company. These amounts include unexercised capital options,
stock options and restricted stock (as issued under the Plan and described in Note G). Potentially
dilutive effects are calculated using the treasury stock method.
The following table is a reconciliation of the basic weighted average common shares
outstanding to diluted weighted average common shares outstanding for the three months ended March
31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(in thousands) |
|
2010 |
|
2009 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
88,831 |
|
|
|
84,529 |
|
Dilutive capital options |
|
|
558 |
|
|
|
|
|
Dilutive common stock options |
|
|
404 |
|
|
|
|
|
Dilutive restricted stock |
|
|
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
90,130 |
|
|
|
84,529 |
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, all shares were antidilutive due to the Companys
net loss. For the three months ended March 31, 2009, 484,376 shares of restricted stock and
2,600,769 stock options were not included in the computation of diluted loss per share, as
inclusion of these items would be antidilutive.
31
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Note O. Other current liabilities
The following table provides the components of the Companys other current liabilities at
March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Other current liabilities: |
|
|
|
|
|
|
|
|
Accrued production costs |
|
$ |
26,880 |
|
|
$ |
24,128 |
|
Payroll related matters |
|
|
14,742 |
|
|
|
14,490 |
|
Accrued interest |
|
|
16,258 |
|
|
|
10,055 |
|
Asset retirement obligations |
|
|
2,332 |
|
|
|
3,262 |
|
Settlements due on derivatives not designated as hedges |
|
|
4,672 |
|
|
|
|
|
Other |
|
|
8,594 |
|
|
|
8,160 |
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
73,478 |
|
|
$ |
60,095 |
|
|
|
|
|
|
|
|
Note P. Subsidiary guarantors
All of the Companys wholly-owned subsidiaries have fully and unconditionally guaranteed the
Senior Notes of the Company (see Note J). In accordance with practices accepted by the SEC, the
Company has prepared Condensed Consolidating Financial Statements in order to quantify the assets,
results of operations and cash flows of such subsidiaries as subsidiary guarantors. The following
Condensed Consolidating Balance Sheets at March 31, 2010 and December 31, 2009, and Condensed
Consolidating Statements of Operations and Condensed Consolidating Statements of Cash Flows for the
three months ended March 31, 2010 and 2009, present financial information for Concho Resources Inc.
as the parent on a stand-alone basis (carrying any investments in subsidiaries under the equity
method), financial information for the subsidiary guarantors on a stand-alone basis (carrying any
investment in non-guarantor subsidiaries under the equity method), and the consolidation and
elimination entries necessary to arrive at the information for the Company on a consolidated basis.
All current and deferred income taxes are recorded on Concho Resources Inc. as the subsidiaries are
flow-through entities for income tax purposes. The subsidiary guarantors are not restricted from
making distributions to the Company.
32
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Condensed Consolidating Balance Sheet
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiary |
|
|
Consolidating |
|
|
|
|
(in thousands) |
|
Issuer |
|
|
Guarantors |
|
|
Entries |
|
|
Total |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable related parties |
|
$ |
3,880,804 |
|
|
$ |
2,469,257 |
|
|
$ |
(6,349,654 |
) |
|
$ |
407 |
|
Other current assets |
|
|
27,447 |
|
|
|
197,962 |
|
|
|
|
|
|
|
225,409 |
|
Total oil and natural gas properties, net |
|
|
|
|
|
|
2,935,760 |
|
|
|
|
|
|
|
2,935,760 |
|
Total property and equipment, net |
|
|
|
|
|
|
15,976 |
|
|
|
|
|
|
|
15,976 |
|
Investment in subsidiaries |
|
|
978,756 |
|
|
|
|
|
|
|
(978,756 |
) |
|
|
|
|
Total other long-term assets |
|
|
46,615 |
|
|
|
56,366 |
|
|
|
|
|
|
|
102,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,933,622 |
|
|
$ |
5,675,321 |
|
|
$ |
(7,328,410 |
) |
|
$ |
3,280,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable related parties |
|
$ |
1,968,955 |
|
|
$ |
4,381,047 |
|
|
$ |
(6,349,654 |
) |
|
$ |
348 |
|
Other current liabilities |
|
|
72,630 |
|
|
|
293,588 |
|
|
|
|
|
|
|
366,218 |
|
Other long-term liabilities |
|
|
635,072 |
|
|
|
21,930 |
|
|
|
|
|
|
|
657,002 |
|
Long-term debt |
|
|
625,928 |
|
|
|
|
|
|
|
|
|
|
|
625,928 |
|
Equity |
|
|
1,631,037 |
|
|
|
978,756 |
|
|
|
(978,756 |
) |
|
|
1,631,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
4,933,622 |
|
|
$ |
5,675,321 |
|
|
$ |
(7,328,410 |
) |
|
$ |
3,280,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiary |
|
|
Consolidating |
|
|
|
|
(in thousands) |
|
Issuer |
|
|
Guarantors |
|
|
Entries |
|
|
Total |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable related parties |
|
$ |
2,715,307 |
|
|
$ |
1,738,382 |
|
|
$ |
(4,453,473 |
) |
|
$ |
216 |
|
Other current assets |
|
|
33,561 |
|
|
|
183,481 |
|
|
|
|
|
|
|
217,042 |
|
Total oil and natural gas properties, net |
|
|
|
|
|
|
2,840,583 |
|
|
|
|
|
|
|
2,840,583 |
|
Total property and equipment, net |
|
|
|
|
|
|
15,706 |
|
|
|
|
|
|
|
15,706 |
|
Investment in subsidiaries |
|
|
876,154 |
|
|
|
|
|
|
|
(876,154 |
) |
|
|
|
|
Total other long-term assets |
|
|
44,291 |
|
|
|
53,247 |
|
|
|
|
|
|
|
97,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,669,313 |
|
|
$ |
4,831,399 |
|
|
$ |
(5,329,627 |
) |
|
$ |
3,171,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable related parties |
|
$ |
790,251 |
|
|
$ |
3,663,513 |
|
|
$ |
(4,453,473 |
) |
|
$ |
291 |
|
Other current liabilities |
|
|
68,706 |
|
|
|
268,017 |
|
|
|
|
|
|
|
336,723 |
|
Other long-term liabilities |
|
|
629,092 |
|
|
|
23,715 |
|
|
|
|
|
|
|
652,807 |
|
Long-term debt |
|
|
845,836 |
|
|
|
|
|
|
|
|
|
|
|
845,836 |
|
Equity |
|
|
1,335,428 |
|
|
|
876,154 |
|
|
|
(876,154 |
) |
|
|
1,335,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
3,669,313 |
|
|
$ |
4,831,399 |
|
|
$ |
(5,329,627 |
) |
|
$ |
3,171,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiary |
|
|
Consolidating |
|
|
|
|
(in thousands) |
|
Issuer |
|
|
Guarantors |
|
|
Entries |
|
|
Total |
|
|
Total operating revenues |
|
$ |
|
|
|
$ |
212,000 |
|
|
$ |
|
|
|
$ |
212,000 |
|
Total operating costs and expenses |
|
|
15,943 |
|
|
|
(109,325 |
) |
|
|
|
|
|
|
(93,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
15,943 |
|
|
|
102,675 |
|
|
|
|
|
|
|
118,618 |
|
Interest expense |
|
|
(11,065 |
) |
|
|
|
|
|
|
|
|
|
|
(11,065 |
) |
Other, net |
|
|
102,602 |
|
|
|
(73 |
) |
|
|
(102,602 |
) |
|
|
(73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
107,480 |
|
|
|
102,602 |
|
|
|
(102,602 |
) |
|
|
107,480 |
|
Income tax expense |
|
|
(39,940 |
) |
|
|
|
|
|
|
|
|
|
|
(39,940 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
67,540 |
|
|
$ |
102,602 |
|
|
$ |
(102,602 |
) |
|
$ |
67,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiary |
|
|
Consolidating |
|
|
|
|
(in thousands) |
|
Issuer |
|
|
Guarantors |
|
|
Entries |
|
|
Total |
|
|
Total operating revenues |
|
$ |
|
|
|
$ |
86,002 |
|
|
$ |
|
|
|
$ |
86,002 |
|
Total operating costs and expenses |
|
|
(5,217 |
) |
|
|
(97,418 |
) |
|
|
|
|
|
|
(102,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(5,217 |
) |
|
|
(11,416 |
) |
|
|
|
|
|
|
(16,633 |
) |
Interest expense |
|
|
(4,370 |
) |
|
|
|
|
|
|
|
|
|
|
(4,370 |
) |
Other, net |
|
|
(11,744 |
) |
|
|
(328 |
) |
|
|
11,744 |
|
|
|
(328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(21,331 |
) |
|
|
(11,744 |
) |
|
|
11,744 |
|
|
|
(21,331 |
) |
Income tax benefit |
|
|
8,106 |
|
|
|
|
|
|
|
|
|
|
|
8,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(13,225 |
) |
|
$ |
(11,744 |
) |
|
$ |
11,744 |
|
|
$ |
(13,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiary |
|
|
Consolidating |
|
|
|
|
(in thousands) |
|
Issuer |
|
|
Guarantors |
|
|
Entries |
|
|
Total |
|
|
Net cash flows provided by operating activities |
|
$ |
4,894 |
|
|
$ |
132,333 |
|
|
$ |
|
|
|
$ |
137,227 |
|
Net cash flows used in investing activities |
|
|
(10,168 |
) |
|
|
(125,128 |
) |
|
|
|
|
|
|
(135,296 |
) |
Net cash flows provided by (used in) financing activities |
|
|
5,238 |
|
|
|
(3,415 |
) |
|
|
|
|
|
|
1,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(36 |
) |
|
|
3,790 |
|
|
|
|
|
|
|
3,754 |
|
Cash and cash equivalents at beginning of period |
|
|
48 |
|
|
|
3,186 |
|
|
|
|
|
|
|
3,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
12 |
|
|
$ |
6,976 |
|
|
$ |
|
|
|
$ |
6,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiary |
|
|
Consolidating |
|
|
|
|
(in thousands) |
|
Issuer |
|
|
Guarantors |
|
|
Entries |
|
|
Total |
|
|
Net cash flows provided by (used in) operating activities |
|
$ |
(80,613 |
) |
|
$ |
121,225 |
|
|
$ |
|
|
|
$ |
40,612 |
|
Net cash flows provided by (used in) investing activities |
|
|
37,124 |
|
|
|
(131,637 |
) |
|
|
|
|
|
|
(94,513 |
) |
Net cash flows provided by (used in) financing activities |
|
|
43,559 |
|
|
|
(5,003 |
) |
|
|
|
|
|
|
38,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
70 |
|
|
|
(15,415 |
) |
|
|
|
|
|
|
(15,345 |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
17,752 |
|
|
|
|
|
|
|
17,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
70 |
|
|
$ |
2,337 |
|
|
$ |
|
|
|
$ |
2,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
Note Q. Supplementary information
Capitalized costs
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Oil and natural gas properties: |
|
|
|
|
|
|
|
|
Proved |
|
$ |
3,271,195 |
|
|
$ |
3,139,424 |
|
Unproved |
|
|
237,127 |
|
|
|
218,580 |
|
Less: accumulated depletion |
|
|
(572,562 |
) |
|
|
(517,421 |
) |
|
|
|
|
|
|
|
Net capitalized costs for oil and natural gas properties |
|
$ |
2,935,760 |
|
|
$ |
2,840,583 |
|
|
|
|
|
|
|
|
Costs incurred for oil and natural gas producing activities (a)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Property acquisition costs: (b) |
|
|
|
|
|
|
|
|
Proved |
|
$ |
9,842 |
|
|
$ |
(940 |
) |
Unproved |
|
|
5,356 |
|
|
|
1,221 |
|
Exploration |
|
|
25,499 |
|
|
|
23,809 |
|
Development |
|
|
111,706 |
|
|
|
83,779 |
|
|
|
|
|
|
|
|
Total costs incurred for oil and natural gas properties |
|
$ |
152,403 |
|
|
$ |
107,869 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The costs incurred for oil and natural gas producing activities includes the following
amounts of asset retirement obligations: |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Proved property acquisition costs |
|
$ |
|
|
|
$ |
|
|
Exploration costs |
|
|
68 |
|
|
|
168 |
|
Development costs |
|
|
(2,200 |
) |
|
|
1,151 |
|
|
|
|
|
|
|
|
Total |
|
$ |
(2,132 |
) |
|
$ |
1,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
During the three months ended March 31, 2009, the Company adjusted the purchase price
allocation related to the acquisition of the Henry Entities. This adjustment reduced the
proved acquisition costs by $940,000 and increased the unproved acquisition costs by $591,000. |
36
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist in understanding our business and results
of operations together with our present financial condition. This section should be read in
conjunction with our historical consolidated financial statements and notes, as well as the
selected historical consolidated financial data included in our Annual Report on Form 10-K for the
year ended December 31, 2009.
During the fourth quarter of 2009, we closed the Wolfberry Acquisitions as discussed below.
As a result of the acquisitions, many comparisons between periods will be difficult or impossible.
Statements in our discussion may be forward-looking statements. These forward-looking
statements involve risks and uncertainties. We caution that a number of factors could cause future
production, revenues and expenses to differ materially from our expectations. Please see
Cautionary Statement Regarding Forward-Looking Statements.
Overview
We are an independent oil and natural gas company engaged in the acquisition, development and
exploration of producing oil and natural gas properties. Our core operations are primarily focused
in the Permian Basin of Southeast New Mexico and West Texas. We have also acquired significant
acreage positions in and are actively involved in drilling or participating in drilling in emerging
plays located in the Permian Basin of Southeast New Mexico and the Williston Basin of North Dakota,
where we are applying horizontal drilling, advanced fracture stimulation and enhanced recovery
technologies. Crude oil comprised 67 percent of our 211.5 million barrels of oil equivalent
(MMBoe) of estimated net proved reserves at December 31, 2009, and 68 percent of our 3.2 MMBoe of
production for the first quarter of 2010. We seek to operate the wells in which we own an interest,
and we operated wells that accounted for 95.3 percent of our proved developed producing PV-10 and
66.4 percent of our 3,960 gross wells at December 31, 2009. By controlling operations, we are able
to more effectively manage the cost and timing of exploration and development of our properties,
including the drilling and stimulation methods used.
Commodity Prices
Our results of operations are heavily influenced by commodity prices. Factors that may impact
future commodity prices, including the price of oil and natural gas, include:
|
|
|
developments generally impacting the Middle East, including Iraq and Iran; |
|
|
|
|
the extent to which members of the Organization of Petroleum Exporting Countries and
other oil exporting nations are able to continue to manage oil supply through export
quotas; |
|
|
|
|
the overall global demand for oil; and |
|
|
|
|
overall North American natural gas supply and demand fundamentals, including: |
|
§ |
|
the impact of the decline of the United States economy, |
|
|
§ |
|
weather conditions, and |
|
|
§ |
|
liquefied natural gas deliveries to the United States. |
Although we cannot predict the occurrence of events that may affect future commodity prices or
the degree to which these prices will be affected, the prices for any commodity that we produce
will generally approximate current market prices in the geographic region of the production. From
time to time, we expect that we may hedge a portion of our commodity price risk to mitigate the
impact of price volatility on our business. See Note I of the Condensed Notes to Consolidated
Financial Statements included in Item 1. Consolidated Financial Statements (Unaudited) for
additional information regarding our commodity hedge positions at March 31, 2010.
37
Oil and natural gas prices have been subject to significant fluctuations during the past
several years. In general, oil prices were substantially higher during the comparable periods of
2010 measured against 2009, while natural gas prices were moderately higher. The following table
sets forth the average NYMEX oil and natural gas prices for the three months ended March 31, 2010
and 2009, as well as the high and low NYMEX prices for the same periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2010 |
|
2009 |
|
Average NYMEX prices: |
|
|
|
|
|
|
|
|
Oil (Bbl) |
|
$ |
78.61 |
|
|
$ |
43.30 |
|
Natural gas (MMBtu) |
|
$ |
5.03 |
|
|
$ |
4.49 |
|
|
|
|
|
|
|
|
|
|
High / Low NYMEX prices: |
|
|
|
|
|
|
|
|
Oil (Bbl): |
|
|
|
|
|
|
|
|
High |
|
$ |
83.76 |
|
|
$ |
54.34 |
|
Low |
|
$ |
71.19 |
|
|
$ |
33.98 |
|
|
|
|
|
|
|
|
|
|
Natural gas (MMBtu): |
|
|
|
|
|
|
|
|
High |
|
$ |
6.01 |
|
|
$ |
6.07 |
|
Low |
|
$ |
3.84 |
|
|
$ |
3.63 |
|
Further,
the NYMEX oil price and NYMEX natural gas price reached highs and lows of $86.84 and
$79.97 per Bbl and $4.28 and $3.91 per MMBtu, respectively, during the period from April 1, 2010
to May 5, 2010. At May 5, 2010, the NYMEX oil price and NYMEX natural gas price were $79.97 per Bbl and $3.99 per MMBtu, respectively.
Recent Events
Credit facility borrowing base. In April 2010, we increased our borrowing base under our
credit facility to $1.2 billion, an increase of $244.1 million. Assuming this increased borrowing
base was in effect at March 31, 2010, we would have had $870 million of availability under our
credit facility. Our increased borrowing base provides us with more flexibility to quickly take
advantage of potential acquisition opportunities should they arise.
Equity issuance. On February 1, 2010, we issued 5,347,500 shares of our common stock at $42.75
per share. After deducting underwriting discounts of approximately $9.1 million and transaction
costs, we received net proceeds of approximately $219.5 million. The net proceeds from this
offering were used to repay a portion of the borrowings under our credit facility.
Wolfberry acquisitions. In December 2009 we closed two acquisitions of interests in producing
and non-producing assets in the Wolfberry play of the Permian Basin, together with the acquisition
of related additional interests that closed in 2010, for approximately $270.7 million in cash,
subject to usual and customary post-closing adjustments (the Wolfberry Acquisitions). The
Wolfberry Acquisitions were primarily funded with borrowings under our credit facility. As of
December 31, 2009, these acquisitions included estimated total proved reserves of 19.9 MMBoe, of
which 69 percent were oil and 25 percent were proved developed. Our 2009 results of operations do
not include any production, revenues or costs from the Wolfberry Acquisitions.
38
2010 capital budget. In December 2009, we announced our 2010 capital budget of approximately
$625 million. We expect to be able to fund our 2010 capital budget substantially within our cash
flow. However, our capital budget is largely discretionary, and if we experience sustained oil and
natural gas prices significantly below the current levels or substantial increases in our drilling
and completion costs, we may reduce our capital spending program to remain substantially within our
cash flow. The following is a summary of our 2010 capital budget:
|
|
|
|
|
|
|
2010 |
|
(in millions) |
|
Budget |
|
|
Drilling and recompletion opportunities in our core operating area |
|
$ |
502 |
|
Projects operated by third parties |
|
|
8 |
|
Emerging plays, acquisition of leasehold acreage and other
property interests, and geological and geophysical |
|
|
82 |
|
Facilities capital in our core operating areas |
|
|
33 |
|
|
|
|
|
Total 2010 capital budget |
|
$ |
625 |
|
|
|
|
|
Derivative Financial Instruments
Derivative financial instrument exposure. At March 31, 2010, the fair value of our financial
derivatives was a net liability of $40.4 million. All of our counterparties to these financial
derivatives are party to our credit facility and have their outstanding debt commitments and
derivative exposures collateralized pursuant to our credit facility. Pursuant to the terms of our
financial derivative instruments and their collateralization under our credit facility, we do not
have exposure to potential margin calls on our financial derivative instruments. We currently
have no reason to believe that our counterparties to these commodity derivative contracts are not
financially viable. Our credit facility does not allow us to offset amounts we may owe a lender
against amounts we may be owed related to our financial instruments with such party.
New commodity derivative contracts. During the first quarter of 2010, we entered into
additional commodity derivative contracts to hedge a portion of our estimated future production.
The following table summarizes information about these additional commodity derivative contracts
for the three months ended March 31, 2010. When aggregating multiple contracts, the weighted
average contract price is disclosed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
Index |
|
Contract |
|
|
Volume |
|
Price |
|
Period |
|
Oil (volumes in Bbls): |
|
|
|
|
|
|
|
|
|
|
|
|
Price swap |
|
|
670,000 |
|
|
$ |
83.72 |
(a) |
|
|
1/1/10 - 12/31/10 |
|
Price swap |
|
|
195,000 |
|
|
$ |
76.85 |
(a) |
|
|
3/1/10 - 12/31/10 |
|
Price swap |
|
|
792,000 |
|
|
$ |
81.77 |
(a) |
|
|
1/1/11 - 12/31/11 |
|
Price swap |
|
|
168,000 |
|
|
$ |
89.00 |
(a) |
|
|
1/1/12 - 12/31/12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (volumes in MMBtus): |
|
|
|
|
|
|
|
|
|
|
|
|
Price swap |
|
|
418,000 |
|
|
$ |
5.99 |
(b) |
|
|
2/1/10 - 12/31/10 |
|
Price swap |
|
|
1,250,000 |
|
|
$ |
5.55 |
(b) |
|
|
3/1/10 - 12/31/10 |
|
Price swap |
|
|
5,076,000 |
|
|
$ |
6.14 |
(b) |
|
|
1/1/11 - 12/31/11 |
|
Price swap |
|
|
300,000 |
|
|
$ |
6.54 |
(b) |
|
|
1/1/12 - 12/31/12 |
|
|
|
|
(a) |
|
The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate
monthly average futures price. |
|
(b) |
|
The index prices for the natural gas price swaps are based on
the NYMEX-Henry Hub last trading day futures price. |
39
Second quarter 2010 commodity derivative contracts. After March 31, 2010 and through May 5, 2010, we entered into the following oil price commodity derivative contracts to hedge an
additional portion of our estimated future production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
Index |
|
Contract |
|
|
Volume |
|
Price |
|
Period |
|
Oil (volumes in Bbls): |
|
|
|
|
|
|
|
|
|
|
|
|
Price swap |
|
|
1,463,000 |
|
|
$ |
88.63 |
(a) |
|
|
5/1/10 - 12/31/10 |
|
Price swap |
|
|
1,344,000 |
|
|
$ |
92.25 |
(a) |
|
|
1/1/11 - 12/31/11 |
|
Price swap |
|
|
2,040,000 |
|
|
$ |
92.98 |
(a) |
|
|
1/1/12 - 12/31/12 |
|
|
|
|
(a) |
|
The index price for the oil price swap is based on the NYMEX-West Texas Intermediate
monthly average futures price. |
40
Results of Operations
The following table sets forth summary information concerning our production results,
average sales prices and operating costs and expenses for the three months ended March 31, 2010 and
2009. The actual historical data in this table excludes results from the Wolfberry Acquisitions for
periods prior to January 1, 2010.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2010 |
|
2009 |
|
Production and operating data: |
|
|
|
|
|
|
|
|
Net production volumes: |
|
|
|
|
|
|
|
|
Oil (MBbl) |
|
|
2,170 |
|
|
|
1,687 |
|
Natural gas (MMcf) |
|
|
6,241 |
|
|
|
4,955 |
|
Total (MBoe) |
|
|
3,210 |
|
|
|
2,513 |
|
|
|
|
|
|
|
|
|
|
Average daily production volumes: |
|
|
|
|
|
|
|
|
Oil (Bbl) |
|
|
24,111 |
|
|
|
18,744 |
|
Natural gas (Mcf) |
|
|
69,344 |
|
|
|
55,056 |
|
Total (Boe) |
|
|
35,668 |
|
|
|
27,922 |
|
|
|
|
|
|
|
|
|
|
Average prices: |
|
|
|
|
|
|
|
|
Oil, without derivatives (Bbl) |
|
$ |
74.99 |
|
|
$ |
38.51 |
|
Oil, with derivatives (Bbl) (a) |
|
$ |
70.32 |
|
|
$ |
59.01 |
|
Natural gas, without derivatives (Mcf) |
|
$ |
7.90 |
|
|
$ |
4.24 |
|
Natural gas, with derivatives (Mcf) (a) |
|
$ |
7.98 |
|
|
$ |
4.76 |
|
Total, without derivatives (Boe) |
|
$ |
66.04 |
|
|
$ |
34.22 |
|
Total, with derivatives (Boe) (a) |
|
$ |
63.04 |
|
|
$ |
49.00 |
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses per Boe: |
|
|
|
|
|
|
|
|
Lease operating expenses and workover costs |
|
$ |
5.84 |
|
|
$ |
6.76 |
|
Oil and natural gas taxes |
|
$ |
5.59 |
|
|
$ |
3.10 |
|
General and administrative |
|
$ |
4.22 |
|
|
$ |
4.68 |
|
Depreciation, depletion and amortization |
|
$ |
16.77 |
|
|
$ |
20.20 |
|
|
|
|
(a) |
|
Includes the effect of the 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 consolidated statements of operations: |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Gain (loss) on derivatives not designated as hedges: |
|
|
|
|
|
|
|
|
Cash (payments on) receipts from oil derivatives |
|
$ |
(10,133 |
) |
|
$ |
34,584 |
|
Cash receipts from natural gas derivatives |
|
|
506 |
|
|
|
2,540 |
|
Cash payments on interest rate derivatives |
|
|
(1,213 |
) |
|
|
|
|
Unrealized mark-to-market gain (loss) on commodity and interest rate
derivatives |
|
|
26,413 |
|
|
|
(42,170 |
) |
|
|
|
|
|
|
|
Gain (loss) on derivatives not designated as hedges |
|
$ |
15,573 |
|
|
$ |
(5,046 |
) |
|
|
|
|
|
|
|
41
The following table presents selected financial and operating information for the fields
which represent greater than 15 percent of our total proved reserves at December 31, 2009 and 2008,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2010 |
|
2009 |
|
|
West |
|
Grayburg |
|
Grayburg |
|
|
Wolfberry |
|
Jackson |
|
Jackson |
|
Production and operating data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net production volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbl) |
|
|
330 |
|
|
|
409 |
|
|
|
324 |
|
Natural gas (MMcf) |
|
|
985 |
|
|
|
1,147 |
|
|
|
942 |
|
Total (MBoe) |
|
|
494 |
|
|
|
600 |
|
|
|
481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices: |
|
|
|
|
|
|
|
|
|
|
|
|
Oil, without derivatives (Bbl) |
|
$ |
76.76 |
|
|
$ |
75.38 |
|
|
$ |
36.88 |
|
Natural gas, without derivatives (Mcf) |
|
$ |
8.37 |
|
|
$ |
8.10 |
|
|
$ |
4.56 |
|
Total, without derivatives (Boe) |
|
$ |
67.94 |
|
|
$ |
66.86 |
|
|
$ |
33.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs per Boe: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses including workovers |
|
$ |
4.67 |
|
|
$ |
5.65 |
|
|
$ |
6.35 |
|
Oil and natural gas taxes |
|
$ |
4.53 |
|
|
$ |
5.74 |
|
|
$ |
2.96 |
|
42
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
Oil and natural gas revenues. Revenue from oil and natural gas operations was $212.0
million for the three months ended March 31, 2010, an increase of $126.0 million (147 percent) from
$86.0 million for the three months ended March 31, 2009. This increase was primarily due to
substantial increases in realized oil and natural gas prices and increased production (i) as a
result of the Wolfberry Acquisitions and (ii) due to successful drilling efforts during 2009 and
2010. Specifically the:
|
|
|
average realized oil price (excluding the effects of derivative activities) was
$74.99 per Bbl during the three months ended March 31, 2010, an increase of 95 percent
from $38.51 per Bbl during the three months ended March 31, 2009; |
|
|
|
|
total oil production was 2,170 MBbl for the three months ended March 31, 2010, an
increase of 483 MBbl (29 percent) from 1,687 MBbl for the three months ended March 31,
2009; |
|
|
|
|
average realized natural gas price (excluding the effects of derivative activities)
was $7.90 per Mcf during the three months ended March 31, 2010, an increase of 86
percent from $4.24 per Mcf during the three months ended March 31, 2009; and |
|
|
|
|
total natural gas production was 6,241 MMcf for the three months ended March 31,
2010, an increase of 1,286 MMcf (26 percent) from 4,955 MMcf for the three months ended
March 31, 2009. |
Production expenses. The following table provides the components of our total oil and natural
gas production costs for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
Per |
|
|
|
|
|
|
Per |
|
(in thousands, except per unit amounts) |
|
Amount |
|
|
Boe |
|
|
Amount |
|
|
Boe |
|
|
Lease operating expenses |
|
$ |
18,376 |
|
|
$ |
5.72 |
|
|
$ |
16,568 |
|
|
$ |
6.59 |
|
Taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem |
|
|
2,955 |
|
|
|
0.92 |
|
|
|
1,502 |
|
|
|
0.60 |
|
Production |
|
|
14,998 |
|
|
|
4.67 |
|
|
|
6,275 |
|
|
|
2.50 |
|
Workover costs |
|
|
371 |
|
|
|
0.12 |
|
|
|
421 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil and natural gas production expenses |
|
$ |
36,700 |
|
|
$ |
11.43 |
|
|
$ |
24,766 |
|
|
$ |
9.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Among the cost components of production expenses, in general, we have some control over lease
operating expenses and workover costs on properties we operate, but production and ad valorem taxes
are directly related to commodity price changes.
Lease operating expenses were $18.4 million ($5.72 per Boe) for the three months ended March
31, 2010, an increase of $1.8 million (11 percent) from $16.6 million ($6.59 per Boe) for the three
months ended March 31, 2009. The increase in lease operating expenses is primarily due to (i) our
wells successfully drilled and completed in 2009 and 2010 and (ii) additional interests acquired in
the Wolfberry Acquisitions in December 2009. The decrease in lease operating expenses per Boe is
primarily due to (i) additional production from our wells successfully drilled and completed in
2009 and 2010 where we are receiving benefits from economies of scale and (ii) a general inflation
of field service and supply costs during the first quarter of 2009 associated with high commodity
prices during late 2008.
Ad valorem taxes have increased primarily as a result of increased valuations of our Texas
properties and the increase in our number of wells primarily associated with the Wolfberry
Acquisitions and 2009 drilling activity.
Production taxes per unit of production were $4.67 per Boe during the three months ended March
31, 2010, an increase of 87 percent from $2.50 per Boe during the three months ended March 31,
2009. The increase is directly related to the increase in commodity prices and our increase in oil
and natural gas revenues related to increased volumes. Over the same period our Boe prices (before
the effects of hedging) increased 93 percent.
43
Workover expenses were approximately $0.4 million for the three months ended March 31, 2010
and 2009. The 2010 and 2009 amounts related primarily to workovers in the New Mexico Permian area
and the Texas Permian area, respectively.
Exploration and abandonments expense. The following table provides a breakdown of our
exploration and abandonments expense for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Geological and geophysical |
|
$ |
668 |
|
|
$ |
677 |
|
Exploratory dry holes |
|
|
218 |
|
|
|
1,421 |
|
Leasehold abandonments and other |
|
|
409 |
|
|
|
3,897 |
|
|
|
|
|
|
|
|
Total exploration and abandonments |
|
$ |
1,295 |
|
|
$ |
5,995 |
|
|
|
|
|
|
|
|
Our geological and geophysical expense, which primarily consists of the costs of acquiring and
processing seismic data, geophysical data and core analysis, was $0.7 million both for the three
months ended March 31, 2010 and 2009.
During the three months ended March 31, 2009, we wrote-off an unsuccessful exploratory well in
our Arkansas emerging play.
For the three months ended March 31, 2010, we recorded $0.4 million of leasehold abandonments,
which were primarily related to prospects in our Texas Permian area. For the three months ended
March 31, 2009, we recorded approximately $3.9 million of leasehold abandonments, which relates
primarily to the write-off of prospects in our New Mexico Permian and Texas Permian areas.
Depreciation, depletion and amortization expense. The following table provides components of
our depreciation, depletion and amortization expense for the three months ended March 31, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
Per |
|
|
|
|
|
|
Per |
|
(in thousands, except per unit amounts) |
|
Amount |
|
|
Boe |
|
|
Amount |
|
|
Boe |
|
|
Depletion of proved oil and natural gas properties |
|
$ |
52,767 |
|
|
$ |
16.44 |
|
|
$ |
49,777 |
|
|
$ |
19.81 |
|
Depreciation of other property and equipment |
|
|
689 |
|
|
|
0.21 |
|
|
|
578 |
|
|
|
0.23 |
|
Amortization of intangible asset operating rights |
|
|
387 |
|
|
|
0.12 |
|
|
|
393 |
|
|
|
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depletion, depreciation and amortization |
|
$ |
53,843 |
|
|
$ |
16.77 |
|
|
$ |
50,748 |
|
|
$ |
20.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil price used to estimate proved oil reserves at period end |
|
$ |
66.13 |
|
|
|
|
|
|
$ |
44.63 |
|
|
|
|
|
Natural gas price used to estimate proved natural gas reserves at period end |
|
$ |
3.99 |
|
|
|
|
|
|
$ |
3.63 |
|
|
|
|
|
Depletion of proved oil and natural gas properties was $52.8 million ($16.44 per Boe) for
the three months ended March 31, 2010, an increase of $3.0 million from $49.8 million ($19.81 per
Boe) for the three months ended March 31, 2009. The increase in depletion expense was primarily due
to capitalized costs associated with new wells that were successfully drilled and completed in 2009
and 2010, offset by the increase in the oil and natural gas prices between the periods utilized to
determine proved reserves. The decrease in depletion expense per Boe was primarily due to (i) the
increase in the oil and natural gas prices between the periods utilized to determine proved
reserves and (ii) the increase in total proved reserves due to the new SEC rules related to
disclosures of oil and natural gas reserves.
On December 31, 2009, we adopted the new SEC rules related to disclosures of oil and natural
gas reserves. As a result of these new SEC rules, we recorded an additional 13.6 MMBoe of proved
reserves in 2009. We included the additional proved reserves in our depletion computation in the
fourth quarter of 2009 and first quarter of 2010. Our first quarter of 2010 depletion expense rate
was $16.44 per Boe, which is lower than past quarters in part due to the these additional proved
reserves. In the future, making comparisons to prior periods as it relates to our depletion rate
may be difficult as a result of these new SEC rules.
44
The amortization of the intangible asset is a result of the value assigned to the operating
rights that we acquired in the July 2008 acquisition of Henry Petroleum LP and certain entities and
individuals affiliated with Henry Petroleum LP (collectively the Henry Entities). The intangible
asset is currently being amortized over an estimated life of approximately 25 years.
Impairment of long-lived assets. We periodically review our long-lived assets to be held and
used, including proved oil and natural gas properties accounted for under the successful efforts
method of accounting. Due primarily to downward adjustments to the economically recoverable proved
reserves associated with declines in well performance, we recognized a non-cash charge against
earnings of $2.4 million during the three months ended March 31, 2010, which was primarily
attributable to natural gas related properties in our New Mexico and Texas Permian areas. For the
three months ended March 31, 2009, we recognized a non-cash charge against earnings of
$4.1 million, which was primarily attributable to natural gas related properties in our New Mexico
Permian area.
General and administrative expenses. The following table provides components of our general
and administrative expenses for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
Per |
|
|
|
|
|
|
Per |
|
(in thousands, except per unit amounts) |
|
Amount |
|
|
Boe |
|
|
Amount |
|
|
Boe |
|
|
General and administrative expenses recurring |
|
$ |
11,121 |
|
|
$ |
3.45 |
|
|
$ |
9,914 |
|
|
$ |
3.95 |
|
Non-recurring bonus paid to Henry Entities employees, see Note K |
|
|
2,468 |
|
|
|
0.77 |
|
|
|
2,561 |
|
|
|
1.02 |
|
Non-cash stock-based compensation stock options |
|
|
1,009 |
|
|
|
0.31 |
|
|
|
1,028 |
|
|
|
0.41 |
|
Non-cash stock-based compensation restricted stock |
|
|
1,822 |
|
|
|
0.57 |
|
|
|
897 |
|
|
|
0.36 |
|
Less: Third-party operating fee reimbursements |
|
|
(2,862 |
) |
|
|
(0.88 |
) |
|
|
(2,654 |
) |
|
|
(1.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses |
|
$ |
13,558 |
|
|
$ |
4.22 |
|
|
$ |
11,746 |
|
|
$ |
4.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses were $13.6 million ($4.22 per Boe) for the three months
ended March 31, 2010, an increase of $1.9 million (16 percent) from $11.7 million ($4.68 per Boe)
for the three months ended March 31, 2009. The increase in general and administrative expenses was
primarily due to (i) an increase in non-cash stock-based compensation for stock-based compensation
awards and (ii) an increase in the number of employees and related personnel expenses, partially
offset by an increase in third-party operating fee reimbursements. The decrease in general and
administrative expenses per Boe was primarily due to increased production associated with (i)
additional production from our wells successfully drilled and completed in 2009 and 2010 and (ii)
additional production from our Wolfberry Acquisitions for which we added no administrative
personnel.
In connection with the Henry Entities acquisition in July 2008, we agreed to pay certain of
the Henry Entities former employees a predetermined bonus amount, in addition to the compensation
we pay these employees, at each of the first and second anniversaries of the closing of the
acquisition. Since these employees will earn this bonus over the two years following the
acquisition and it is outside of our control, we are reflecting the cost in our general and
administrative costs as non-recurring. See Note K of the Condensed Notes to Consolidated Financial
Statements included in Item 1. Consolidated Financial Statements (Unaudited) for additional
information related to this bonus.
We earn reimbursements as operator of certain oil and natural gas properties in which we own
interests. As such, we earned reimbursements of $2.9 million and $2.7 million during the three
months ended March 31, 2010 and 2009, respectively. This reimbursement is reflected as a reduction
of general and administrative expenses in the consolidated statements of operations.
45
(Gain) loss on derivatives not designated as hedges. The following table sets forth the cash
settlements and the non-cash mark-to-market adjustment for the derivative contracts not designated
as hedges for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(in thousands) |
|
2010 |
|
|
2009 |
|
|
Cash payments (receipts): |
|
|
|
|
|
|
|
|
Commodity derivatives oil |
|
$ |
10,133 |
|
|
$ |
(34,584 |
) |
Commodity derivatives natural gas |
|
|
(506 |
) |
|
|
(2,540 |
) |
Financial derivatives interest |
|
|
1,213 |
|
|
|
|
|
Mark-to-market (gain) loss: |
|
|
|
|
|
|
|
|
Commodity derivatives oil |
|
|
(1,438 |
) |
|
|
39,037 |
|
Commodity derivatives natural gas |
|
|
(27,187 |
) |
|
|
706 |
|
Financial derivatives interest |
|
|
2,212 |
|
|
|
2,427 |
|
|
|
|
|
|
|
|
(Gain) loss on derivatives not designated as hedges |
|
$ |
(15,573 |
) |
|
$ |
5,046 |
|
|
|
|
|
|
|
|
Interest expense. The following table sets forth interest expense, weighted average interest
rates and weighted average debt balances for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
(dollars in thousands) |
|
2010 |
|
2009 |
|
Interest expense |
|
$ |
11,065 |
|
|
$ |
4,370 |
|
Weighted average interest rate |
|
|
5.2 |
% |
|
|
2.0 |
% |
Weighted average debt balance |
|
$ |
711.0 |
|
|
$ |
655.9 |
|
The increase in interest expense of approximately $6.7 million is due to interest costs on our
8.625% unsecured senior notes that were issued in September 2009. The increase in the weighted
average debt balance during the three months ended March 31, 2010 is due to our borrowings under
our credit facility to finance the Wolfberry Acquisitions, offset by a partial repayment on our
credit facility in February 2010 with the net proceeds of our equity offering. The increase in the
weighted average interest rate is primarily due to an increase in market interest rates, which
increases the rate on borrowings under our credit facility.
Income tax provisions. We recorded income tax expense of $39.9 million and an income tax
benefit of $8.1 million for the three months ended March 31, 2010 and 2009, respectively. The
effective income tax rate for the three months ended March 31, 2010 and 2009 was 37.2 percent and
38.0 percent, respectively.
Capital Commitments, Capital Resources and Liquidity
Capital commitments. Our primary needs for cash are development, exploration and acquisition
of oil and natural gas assets, payment of contractual obligations and working capital obligations.
Funding for these cash needs may be provided by any combination of internally-generated cash flow,
financing under our credit facility, proceeds from the disposition of assets or alternative
financing sources, as discussed in Capital resources below.
Oil and natural gas properties. Our costs incurred on oil and natural gas properties,
excluding acquisitions and asset retirement obligations, during the three months ended March 31,
2010 and 2009 totaled $139.3 million and $106.3 million, respectively, as compared to the
comparable amount in cash flows used by investing activities of $113.7 million and $131.6 million
for the respective periods. The primary reason for the differences in the costs incurred and cash
flow expenditures is the timing of payments. These expenditures in 2010 were primarily funded by
cash flow from operations (including effects of cash settlements received from (paid on)
derivatives not designated as hedges).
46
In December 2009, we announced our 2010 capital budget of approximately $625 million. We
expect to be able to fund our 2010 capital budget substantially within our cash flow. However, our
capital budget is largely discretionary, and if we experience sustained oil and natural gas prices
significantly below the current levels or substantial increases in our drilling and completion
costs, we may reduce our capital spending program to remain substantially within our cash flow.
Other than the purchase of leasehold acreage and other miscellaneous property interests, our
2010 capital budget is exclusive of acquisitions. We do not have a specific acquisition budget,
since the timing and size of acquisitions are difficult to forecast. We evaluate opportunities to
purchase or sell oil and natural gas properties in the marketplace and could participate as a buyer
or seller of properties at various times. We seek to acquire oil and natural gas properties that
provide opportunities for the addition of reserves and production through a combination of
development, high-potential exploration and control of operations that will allow us to apply our
operating expertise.
Although we cannot provide any assurance, we believe that our available cash and cash flows
will substantially fund our 2010 non-acquisition capital expenditures, as adjusted from time to
time; however, we may also use our credit facility or other alternative financing sources to fund
such expenditures. The actual amount and timing of our expenditures may differ materially from our
estimates as a result of, among other things, actual drilling results, the timing of expenditures
by third parties on projects that we do not operate, the availability of drilling rigs and other
services and equipment, regulatory, technological and competitive developments and market
conditions. In addition, under certain circumstances we would consider increasing or reallocating
our 2010 capital budget.
Acquisitions. Our expenditures for acquisitions of proved and unproved properties during the
three months ended March 31, 2010 and 2009 totaled $15.2 million and $0.3 million, respectively.
The proved acquisitions during the three months ended March 31, 2010, primarily relate to
additional interests that we closed in 2010 on the Wolfberry Acquisitions.
Contractual obligations. Our contractual obligations include long-term debt, cash interest
expense on debt, operating lease obligations, drilling commitments, employment agreements with
executive officers, contractual bonus payments, derivative liabilities and other obligations. Since
December 31, 2009, the material changes in our contractual obligations included a $220.0 million
decrease in outstanding long-term borrowings, a $27.9 million decrease in cash interest expense on
debt and a $26.4 million decrease in our net commodity derivative obligations. See Note J of
Condensed Notes to Consolidated Financial Statements included in Item 1. Consolidated Financial
Statements (Unaudited) for additional information regarding our long-term debt and Item 3.
Quantitative and Qualitative Disclosures About Market Risk for information regarding the interest
on our long-term debt and information on changes in the fair value of our open derivative
obligations during the three months ended March 31, 2010.
Off-balance sheet arrangements. Currently, we do not have any material off-balance sheet
arrangements.
Capital resources. Our primary sources of liquidity have been cash flows generated from
operating activities (including the cash settlements received from (paid on) derivatives not
designated as hedges presented in our investing activities) and financing provided by our credit
facility. We believe that funds from our cash flows should be sufficient to meet both our
short-term working capital requirements and our 2010 capital expenditure plans. If our cash flows
are not sufficient, we believe we have adequate availability under our credit facility to fund cash
flow deficits, though we may reduce our capital spending program to remain substantially within our
cash flow.
Cash flow from operating activities. Our net cash provided by operating activities was
$137.2 million and $40.6 million for the three months ended March 31, 2010 and 2009, respectively.
The increase in operating cash flows during the three months ended March 31, 2010 over 2009 was
principally due to increases in average realized oil and natural gas prices coupled with increased
production.
Cash flow used in investing activities. During the three months ended March 31, 2010 and 2009,
we invested $113.7 million and $131.6 million, respectively, for additions to, and acquisitions of,
oil and natural gas properties, inclusive of dry hole costs. Cash flows used in investing
activities were higher during the three months ended March 31, 2010 over 2009, due to an increase
in our cash settlements paid on derivatives not designated as hedges, offset by a reduction in
capital expenditures on oil and natural gas properties.
Cash flow from financing activities. Net cash provided by financing activities was $1.8
million and $38.6 million for the three months ended March 31, 2010 and 2009, respectively. During
the three months ended March 31, 2010, we reduced our outstanding balance on our credit facility by
$220.0 million primarily using proceeds from the issuance of common stock. During the three months
ended March 31, 2009, we had net borrowings of $40.8 million under our credit facility.
Our credit facility, as amended, has a maturity date of July 31, 2013. At March 31, 2010, we
had letters of credit outstanding under the credit facility of approximately $25,000, and our
availability to borrow additional funds was approximately $625.9 million
47
based on the borrowing base at the time of $955.9 million. In April 2010, the lenders increased our
borrowing base to $1.2 billion, an increase of over $244 million, under the credit facility until
the next scheduled borrowing base redetermination in October 2010. Between scheduled borrowing base
redeterminations, we and, if requested by 66 2/3 percent of the lenders, the lenders, may each
request one special redetermination.
Advances on the credit facility bear interest, at our option, based on (i) the prime rate of
JPMorgan Chase Bank (JPM Prime Rate) (3.25 percent at March 31, 2010) or (ii) a Eurodollar rate
(substantially equal to the London Interbank Offered Rate). At March 31, 2010, the interest rates
of Eurodollar rate advances and JPM Prime Rate advances vary, with interest margins ranging from
200 to 300 basis points and 112.5 to 212.5 basis points, respectively, per annum depending on the
debt balance outstanding. At March 31, 2010, we paid commitment fees on the unused portion of the
available borrowing base of 50 basis points per annum.
In conducting our business, we may utilize various financing sources, including the issuance
of (i) fixed and floating rate debt, (ii) convertible securities, (iii) preferred stock, (iv)
common stock and (v) other securities. We may also sell assets and issue securities in exchange
for oil and natural gas assets or interests in oil and natural gas companies. Additional
securities may be of a class senior to common stock with respect to such matters as dividends and
liquidation rights and may also have other rights and preferences as determined from time to time
by our board of directors. Utilization of some of these financing sources may require approval from
the lenders under our credit facility.
On February 1, 2010, we issued 5.3 million shares of our common stock at $42.75 per share.
After deducting underwriting discounts of approximately $9.1 million and transaction costs, we
received net proceeds of approximately $219.5 million. The net proceeds from this offering were
used to repay a portion of the borrowing under our credit facility.
Financial markets. The current state of the financial markets remains uncertain; however, we
have recently seen improvements in the stock market, and the credit markets appear to have
stabilized. There have been financial institutions that have (i) failed and been forced into
government receivership, (ii) received government bail-outs, (iii) declared bankruptcy, (iv) been
forced to seek additional capital and liquidity to maintain viability or (v) merged. The United
States and world economies have experienced and continue to experience volatility, which continues
to impact the financial markets.
At March 31, 2010, after giving effect to our April 2010 increased borrowing base under our
credit facility of $1.2 billion, we would have had $870.0 million of available borrowing capacity.
Our credit facility is backed by a syndicate of 20 banks. Even in light of the volatility in the
financial markets, we believe that the lenders under our credit facility have the ability to fund
additional borrowings we may need for our business.
We pay floating rate interest under our credit facility, and we are unable to predict,
especially in light of the uncertainty in the financial markets, whether we will incur increased
interest costs due to rising interest rates. We have used interest rate derivatives to mitigate
the cost of rising interest rates, and we may enter into additional interest rate derivatives in
the future. Additionally, we may issue additional fixed rate debt in the future to increase
available borrowing capacity under our credit facility or to reduce our exposure to the volatility
of interest rates.
In the current financial markets, there is no assurance that we could refinance our credit
facility with comparable terms, particularly the five-year term of our credit facility. Because our
credit facility matures in July 2013, we do not expect to seek refinancing of our credit facility
until 2011.
To the extent we need additional funds beyond those available under our credit facility to
operate our business or make acquisitions, we would have to pursue other financing sources. These
sources could include issuance of (i) fixed and floating rate debt, (ii) convertible securities,
(iii) preferred stock, (iv) common stock or (v) other securities. We may also sell assets.
However, in light of the current financial market conditions there are no assurances that we could
obtain additional funding, or if available, at what cost and terms.
Liquidity. Our principal sources of short-term liquidity are cash on hand and available
borrowing capacity under our credit facility. At March 31, 2010, we had $7.0 million of cash on
hand.
At March 31, 2010, after giving effect to our April 2010 increased borrowing base under our
credit facility of $1.2 billion, we would have had $870.0 million of available borrowing capacity.
Our borrowing base is redetermined semi-annually, with the next redetermination occurring in
October 2010. Between scheduled borrowing base redeterminations, we and, if requested by 66 2/3
percent of the lenders, the lenders, may each request one special redetermination. In general,
redeterminations are based upon a number of factors, including commodity prices and reserve levels.
Upon a redetermination, our borrowing base could be substantially
48
reduced. In light of the current commodity prices and the state of the financial markets, there is
no assurance that our borrowing base will not be reduced.
Book capitalization and current ratio. Our book capitalization at March 31, 2010 was $2,257.0
million, consisting of debt of $625.9 million and stockholders equity of $1,631.0 million. Our
debt to book capitalization was 28 percent and 39 percent at March 31, 2010 and December 31, 2009,
respectively. Our ratio of current assets to current liabilities was 0.62 to 1.00 at March 31,
2010 as compared to 0.64 to 1.00 at December 31, 2009.
Inflation and changes in prices. Our revenues, the value of our assets, and our ability to
obtain bank financing or additional capital on attractive terms have been and will continue to be
affected by changes in commodity prices and the costs to produce our reserves. Commodity prices are
subject to significant fluctuations that are beyond our ability to control or predict. During the
three months ended March 31, 2010, we received an average of $74.99 per barrel of oil and $7.90 per
Mcf of natural gas before consideration of commodity derivative contracts compared to $38.51 per
barrel of oil and $4.24 per Mcf of natural gas in the three months ended March 31, 2009. Although
certain of our costs are affected by general inflation, inflation does not normally have a
significant effect on our business. In a trend that began in 2004 and continued through the first
six months of 2008, commodity prices for oil and natural gas increased significantly. The higher
prices led to increased activity in the industry and, consequently, rising costs. These cost trends
have put pressure not only on our operating costs but also on capital costs. We expect these costs
to have upward pressure during 2010 as a result of the recent improvements in oil prices from 2009.
Critical Accounting Policies, Practices and Estimates
Our historical consolidated financial statements and related notes to consolidated financial
statements contain information that is pertinent to our managements discussion and analysis of
financial condition and results of operations. Preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires that our management
make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and the disclosure of contingent assets and liabilities. However, the
accounting principles used by us generally do not change our reported cash flows or liquidity.
Interpretation of the existing rules must be done and judgments made on how the specifics of a
given rule apply to us.
In managements opinion, the more significant reporting areas impacted by managements
judgments and estimates are revenue recognition, the choice of accounting method for oil and
natural gas activities, oil and natural gas reserve estimation, asset retirement obligations,
impairment of long-lived assets and valuation of stock-based compensation. Managements judgments
and estimates in these areas are based on information available from both internal and external
sources, including engineers, geologists and historical experience in similar matters. Actual
results could differ from the estimates, as additional information becomes known.
There have been no material changes in our critical accounting policies and procedures during
the three months ended March 31, 2010. See our disclosure of critical accounting policies in the
consolidated financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2009, filed with the SEC on February 26, 2010.
Recent Accounting Pronouncements
In February 2010, the FASB issued an update to various topics, which eliminated outdated
provisions and inconsistencies in the Accounting Standards Codification (the Codification), and
clarified certain guidance to reflect the FASBs original intent. The update is effective for the
first reporting period, including interim periods, beginning after issuance of the update, except
for the amendments affecting embedded derivatives and reorganizations. In addition to amending the
Codification, the FASB made corresponding changes to the legacy accounting literature to facilitate
historical research. These changes are included in an appendix to the update. We adopted the update
effective January 1, 2010, and the adoption did not have a significant impact on our consolidated
financial statements.
49
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following market risk disclosures should be read in conjunction with the quantitative
and qualitative disclosures about market risk contained in our Annual Report on Form 10-K for the
year ended December 31, 2009.
We are exposed to a variety of market risks including credit risk, commodity price risk and
interest rate risk. We address these risks through a program of risk management which includes the
use of derivative instruments. The following quantitative and qualitative information is provided
about financial instruments to which we are a party at March 31, 2010, and from which we may incur
future gains or losses from changes in market interest rates or commodity prices and losses from
extension of credit. We do not enter into derivative or other financial instruments for
speculative or trading purposes.
Hypothetical changes in interest rates and commodity prices chosen for the following estimated
sensitivity analysis are considered to be reasonably possible near-term changes generally based on
consideration of past fluctuations for each risk category. However, since it is not possible to
accurately predict future changes in interest rates and commodity prices, these hypothetical
changes may not necessarily be an indicator of probable future fluctuations.
Credit risk. We monitor our risk of loss due to non-performance by counterparties of their
contractual obligations. Our principal exposure to credit risk is through the sale of our oil and
natural gas production, which we market to energy marketing companies and refineries and to a
lesser extent our derivative counterparties. We monitor our exposure to these counterparties
primarily by reviewing credit ratings, financial statements and payment history. We extend credit
terms based on our evaluation of each counterpartys creditworthiness. Although we have not
generally required our counterparties to provide collateral to support their obligation to us, we
may, if circumstances dictate, require collateral in the future. In this manner, we reduce credit
risk.
Commodity price risk. We are exposed to market risk as the prices of oil and natural gas are
subject to fluctuations resulting from changes in supply and demand. To reduce our exposure to
changes in the prices of oil and natural gas we have entered into, and may in the future enter
into, additional commodity price risk management arrangements for a portion of our oil and natural
gas production. The agreements that we have entered into generally have the effect of providing us
with a fixed price for a portion of our expected future oil and natural gas production over a fixed
period of time. Our commodity price risk management activities could have the effect of reducing
net income and the value of our common stock. An average increase in the commodity price of $10.00
per barrel of oil and $1.00 per MMBtu for natural gas from the commodity prices at March 31, 2010,
would have increased the net unrealized loss on our commodity price risk management contracts by
approximately $93.2 million.
At March 31, 2010, we had (i) oil price swaps that settle on a monthly basis covering future
oil production from April 1, 2010 through December 31, 2012 and (ii) a natural gas price swap,
natural gas price collars and natural gas basis swaps covering future natural gas production from
April 1, 2010 to December 31, 2012; see Note I of the Condensed Notes to Consolidated Financial
Statements included in Item 1. Consolidated Financial Statements (Unaudited) for additional
information on the commodity derivative contracts. The average NYMEX oil futures price and average
NYMEX natural gas futures price for the three months ended March 31, 2010, was $78.61 per Bbl and
$5.03 per MMBtu, respectively. At May 5, 2010, the NYMEX oil futures price and NYMEX natural
gas futures price were $79.97 per Bbl and $3.99 per MMBtu, respectively. A decrease in oil and
natural gas prices would decrease the fair value liability of our commodity derivative contracts
from their recorded balance at March 31, 2010. Changes in the recorded fair value of the
undesignated commodity derivative contracts are marked to market through earnings as unrealized
gains or losses. The potential decrease in our fair value liability would be recorded in earnings
as an unrealized gain. However, an increase in the average NYMEX oil and natural gas futures price
above those at March 31, 2010, would result in an increase in our fair value liability and be
recorded as an unrealized loss in earnings. We are currently unable to estimate the effects on the
earnings of future periods resulting from changes in the market value of our commodity derivative
contracts.
Interest rate risk. Our exposure to changes in interest rates relates primarily to debt
obligations. We manage our interest rate exposure by limiting our variable-rate debt to a certain
percentage of total capitalization and by monitoring the effects of market changes in interest
rates. To reduce our exposure to changes in interest rates we have entered into, and may in the
future enter into additional interest rate risk management arrangements for a portion of our
outstanding debt. The agreements that we have entered into generally have the effect of providing
us with a fixed interest rate for a portion of our variable rate debt. We may utilize interest rate
derivatives to alter interest rate exposure in an attempt to reduce interest rate expense related
to existing debt issues. Interest rate derivatives are used solely to modify interest rate exposure
and not to modify the overall leverage of the debt portfolio. We are exposed to changes in interest
rates as a result of our credit facility, and the terms of our credit facility require us to pay
higher interest rate margins as we utilize a larger percentage of our available borrowing base.
At March 31, 2010, we had interest rate swaps on $300 million of notional principal that fixed
the LIBOR interest rate (not including the interest rate margins discussed above) at 1.90 percent
for the three years beginning in May 2009. An average decrease
50
in future interest rates of 25 basis points from the future rate at March 31, 2010, would have
decreased our net unrealized value on our interest rate risk management contracts by approximately
$1.6 million.
We had total indebtedness of $330.0 million outstanding under our credit facility at March 31,
2010. The impact of a 1 percent increase in interest rates on this amount of debt would result in
increased annual interest expense of approximately $3.3 million.
The fair value of our derivative instruments is determined based on our valuation models. We
did not change our valuation method during 2010. During 2010, we were party to commodity and
interest rate derivative instruments; see Note I of the Condensed Notes to Consolidated Financial
Statements included in Item 1. Consolidated Financial Statements (Unaudited) for additional
information regarding our derivative instruments. The following table reconciles the changes that
occurred in the fair values of our derivative instruments during the three months ended March 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments Net Assets (Liabilities) (a) |
|
(in thousands) |
|
Commodities |
|
|
Interest Rate |
|
|
Total |
|
|
Fair value of contracts outstanding at December 31, 2009 |
|
$ |
(64,332 |
) |
|
$ |
(2,501 |
) |
|
$ |
(66,833 |
) |
Changes in fair values (b) |
|
|
18,998 |
|
|
|
(3,425 |
) |
|
|
15,573 |
|
Contract maturities |
|
|
9,627 |
|
|
|
1,213 |
|
|
|
10,840 |
|
|
|
|
|
|
|
|
|
|
|
Fair value of contracts outstanding at March 31, 2010 |
|
$ |
(35,707 |
) |
|
$ |
(4,713 |
) |
|
$ |
(40,420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the fair values of open derivative contracts subject to market
risk. |
|
(b) |
|
At inception, new derivative contracts entered into by us have no
intrinsic value. |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) of the
Exchange Act, we have evaluated, under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this
report. Our disclosure controls and procedures are designed to provide reasonable assurance that
the information required to be disclosed by us in reports that we file under the Exchange Act is
accumulated and communicated to our management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely decisions regarding required
disclosure and is recorded, processed, summarized and reported within the time periods specified in
the rules and forms of the SEC. Based upon the evaluation, our principal executive officer and
principal financial officer have concluded that our disclosure controls and procedures were
effective at March 31, 2010 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting. There have been no changes in our
internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)
that occurred during our last fiscal quarter that have materially affected or are reasonably likely
to materially affect our internal controls over financial reporting.
51
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We are party to the legal proceedings that are described in Note K of the Condensed Notes
to Consolidated Financial Statements included in Item 1. Consolidated Financial Statements
(Unaudited). We are also party to other proceedings and claims incidental to our business. While
many of these other matters involve inherent uncertainty, we believe that the liability, if any,
ultimately incurred with respect to such other proceedings and claims will not have a material
adverse effect on our consolidated financial position as a whole or on our liquidity, capital
resources or future results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully
consider the risks discussed in the Companys Annual Report on Form 10-K for the year ended
December 31, 2009, under the headings Item 1. Business Competition, Marketing Arrangements and
Applicable Laws and Regulations, Item 1A. Risk Factors and Item 7A. Quantitative and
Qualitative Disclosures About Market Risk, which risks could materially affect the Companys
business, financial condition or future results. There have been no material changes in the
Companys risk factors from those described in its Annual Report on Form 10-K for the year ended
December 31, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
of shares |
|
number of |
|
|
|
|
|
|
|
|
|
|
purchased as |
|
shares that |
|
|
Total number |
|
|
|
|
|
part of publicly |
|
may yet be |
|
|
of shares |
|
Average price |
|
announced |
|
purchased |
Period |
|
withheld(1) |
|
per share |
|
plans |
|
under the plan |
|
January 1, 2010 - January 31, 2010 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
February 1, 2010 - February 28, 2010 |
|
|
4,678 |
|
|
$ |
46.75 |
|
|
|
|
|
|
|
|
|
March 1, 2010 - March 31, 2010 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents shares that were withheld by us to satisfy tax withholding obligations of
certain officers that arose upon the lapse of restrictions on restricted stock. |
52
Item 6. Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Exhibit |
3.1
|
|
Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Companys Current Report on Form 8-K on
August 8, 2007, and incorporated herein by reference). |
|
|
|
3.2
|
|
Amended and Restated Bylaws of Concho Resources Inc., as amended March 25, 2008 (filed as Exhibit 3.1 to
the Companys Current Report on Form 8-K on March 26, 2008, and incorporated herein by reference). |
|
|
|
4.1
|
|
Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Companys Current Report on Form S-1/A on
July 5, 2007, and incorporated herein by reference). |
|
|
|
10.1
|
|
Second Amendment to Amended and Restated Credit Agreement, dated April 26, 2010, by and among
Concho Resources Inc., JP Morgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K on April 29, 2010, and incorporated herein by reference). |
|
|
|
31.1 (a)
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 (a)
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 (b)
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 (b)
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
(a) |
|
Filed herewith. |
|
(b) |
|
Furnished herewith. |
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
CONCHO RESOURCES INC. |
|
|
|
|
|
|
|
|
|
Date: May 7, 2010
|
|
By
|
|
/s/ Timothy A. Leach
Timothy A. Leach
|
|
|
|
|
|
|
Director, Chairman of the Board of Directors, Chief Executive |
|
|
|
|
|
|
Officer and President (Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
By |
|
/s/ Darin G. Holderness
Darin G. Holderness
|
|
|
|
|
|
|
Vice President, Chief Financial Officer and Treasurer |
|
|
|
|
|
|
(Principal Financial and Accounting Officer) |
|
|
54
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Exhibit |
3.1
|
|
Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Companys Current Report on Form 8-K on
August 8, 2007, and incorporated herein by reference). |
|
|
|
3.2
|
|
Amended and Restated Bylaws of Concho Resources Inc., as amended March 25, 2008 (filed as Exhibit 3.1 to
the Companys Current Report on Form 8-K on March 26, 2008, and incorporated herein by reference). |
|
|
|
4.1
|
|
Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Companys Current Report on Form S-1/A on
July 5, 2007, and incorporated herein by reference). |
|
|
|
10.1
|
|
Second Amendment to Amended and Restated Credit Agreement, dated April 26, 2010, by and among
Concho Resources Inc., JP Morgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K on April 29, 2010, and incorporated herein by reference). |
|
|
|
31.1 (a)
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 (a)
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 (b)
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 (b)
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
(a) |
|
Filed herewith. |
|
(b) |
|
Furnished herewith. |