Concho Resources Inc. Reports Fourth-quarter and Full-year 2019results, Provides 2020 Outlookand Increases Dividend

Source Press Release
Company Concho Resources Inc 
Tags Unconventional Resources, Capital Spending, Guidance, Financial & Operating Data, Strategy - Corporate
Date February 18, 2020

Concho Resources Inc. (NYSE: CXO) (the “Company” or “Concho”) today reported financial and operating results for fourth-quarter and full-year 2019.

Highlights

Fourth Quarter

  • Delivered oil production volumes of 215 MBopd, exceeding the high end of the Company's guidance range.
  • Completed the New Mexico Shelf divestiture, enabling Concho to achieve its debt-reduction target and repurchase $250 million of shares during the quarter.
  • Generated cash flow from operating activities of $769 million; operating cash flow before working capital changes (non-GAAP) was $801 million, exceeding exploration and development costs incurred of $614 million.
  • Reported net loss of $471 million, or $2.38 per share. Adjusted net income (non-GAAP) totaled $206 million, or $1.03 per share.
  • Reported $853 million of adjusted EBITDAX (non-GAAP).

Full Year

  • Increased oil production volumes 25% year over year.
  • Completed $1.3 billion in non-core asset sales.
  • Paid $100 million in dividends, initiated a $1.5 billion share repurchase program and repurchased $250 million of shares in 2019.
  • Generated cash flow from operating activities of $2.8 billion; operating cash flow before working capital changes (non-GAAP) was $2.9 billion.
  • Reported net loss of $705 million, or $3.55 per share. Adjusted net income (non-GAAP) totaled $611 million, or $3.05 per share.
  • Reported $3.1 billion of adjusted EBITDAX (non-GAAP).

2020 Outlook

  • Increasing Concho's quarterly dividend 60% to $0.20 per share.
  • Planning a $2.6 to $2.8 billion capital program, representing a 10% reduction year over year at the midpoint of the guidance.
  • Expecting to generate 10% to 12% annual oil volume growth, pro forma for the New Mexico Shelf divestiture.

See “Supplemental Non-GAAP Financial Measures” below for descriptions of the above non-GAAP measures as well as a reconciliation of these measures to the associated GAAP (as defined herein) measures.

Tim Leach, Chairman and Chief Executive Officer, commented, “During the fourth quarter, we delivered strong operational and financial performance, with oil volumes exceeding our guidance range and cash flow from operations totaling $801 million, excluding working capital changes. This exceeded exploration and development costs of $614 million, resulting in free cash flow of $187 million for the quarter. Our cost structure continued to improve as well, with fourth quarter controllable costs coming in below our year-end 2020 target of $9.00 per Boe.

We carry this focus into 2020. Our strategic priorities are to grow margins, grow free cash flow, grow distributions and advance our sustainability progress. We are off to a strong start with a disciplined, returns-focused capital program that is expected to increase oil production 10% to 12% year over year on a pro forma basis for asset sales. The capital program also enables us to strengthen distributions to shareholders, with a 60% increase to our quarterly dividend. With improving capital efficiency and a strong foundation of high-margin drilling opportunities, Concho is well positioned to deliver strong returns for investors.”

Fourth-Quarter 2019 Summary

Fourth-quarter 2019 oil production volumes increased 8% year over year to 215 thousand barrels per day (MBopd). Natural gas production for fourth-quarter 2019 totaled 735 million cubic feet per day (MMcfpd). The Company’s total production for fourth-quarter 2019 grew 10% year over year to 337 thousand barrels of oil equivalent per day (MBoepd).

Net loss for fourth-quarter 2019 was $471 million, or $2.38 per share. Special items impacting earnings for the quarter included a $201 million goodwill impairment charge and a $133 million loss on the disposition of assets, primarily related to certain exchanges of oil and natural gas properties. Excluding these and other special items, fourth-quarter 2019 adjusted net income (non-GAAP) was $206 million, or $1.03 per share. Concho’s average realized price for oil and natural gas for fourth-quarter 2019, excluding the effect of commodity derivatives, was $56.63 per Bbl and $1.88 per Mcf, respectively.

Achieved Controllable Cost Target Early

The Company is focused on improving operating margins by reducing its cost structure and established a $9.00 per Boe controllable cost target by year-end 2020. Controllable costs include oil and natural gas production expenses (consisting of lease operating and workover expenses), cash general and administrative expenses (which excludes non-cash stock-based compensation) and interest expense. For fourth-quarter 2019, controllable costs totaled $8.43 per Boe, representing a 17% decrease year over year and achieving the Company's target one year early.

Generated Strong Cash Flow

For fourth-quarter 2019, cash flow from operating activities was $769 million, including $32 million in working capital changes. Operating cash flow before working capital changes (non-GAAP) was $801 million, exceeding fourth quarter costs incurred for exploration and development activities of $614 million.

Completed New Mexico Shelf Asset Sale

On November 1, 2019, the Company completed the previously-announced sale of its New Mexico Shelf assets. The sale proceeds enabled Concho to achieve its debt reduction target, by paying down its credit facility, while delivering additional returns to shareholders under its $1.5 billion share repurchase program. During fourth-quarter 2019, the Company repurchased 3.3 million shares for $250 million at an average price of $75.75 per share.

Full-Year 2019 Summary

Total production for 2019 increased 26% to 331 MBoepd, including a 25% increase in oil production to 209 MBopd. Natural gas production for 2019 was 731 MMcfpd.

For 2019, Concho’s average realized price for oil and natural gas, excluding the effect of commodity derivatives, was $54.03 per Bbl and $1.74 per Mcf, respectively, compared with $56.22 per Bbl and $3.40 per Mcf, respectively, for 2018.

Net loss for 2019 was $705 million, or $3.55 per share, compared with net income of $2.3 billion, or $13.25 per share, in 2018. Excluding non-cash and special items, full-year 2019 adjusted net income (non-GAAP) was $611 million, or $3.05 per share, compared with adjusted net income of $792 million, or $4.59 per share, for full-year 2018.

Adjusted EBITDAX (non-GAAP) for 2019 totaled $3.1 billion, compared with $2.8 billion in 2018.

For 2019, cash flow from operating activities was $2.8 billion, including $40 million in working capital changes. Operating cash flow before working capital changes (non-GAAP) was $2.9 billion. Costs incurred for exploration and development activities totaled $3.0 billion for the year.

2019 Proved Reserves

At December 31, 2019, Concho’s estimated proved reserves totaled 1.0 billion Boe, compared to 1.2 billion Boe at year-end 2018. The Company’s proved reserves are approximately 62% oil and 38% natural gas. Proved developed reserves totaled 745 MMBoe, or 74% of total proved reserves, compared to 69% at year-end 2018. The reduction in proved reserves year over year is primarily attributable to the sale of the Company's New Mexico Shelf assets, performance revisions from the Company's well-spacing tests, the decline in oil and natural gas prices used to determine proved reserves and the removal of proved undeveloped reserves that the Company no longer expects to develop within the SEC mandated development window. For a summary of the Company’s estimated proved reserves, see Estimated Year-End Proved Reserves below.

Outlook

For 2020, Concho is planning to invest $2.6 to $2.8 billion. The Company's activity is expected to result in 300 to 320 gross operated well completions with an average lateral length of 10,000 feet, as compared to 294 gross operated well completions with an average lateral length of approximately 9,000 feet in 2019. This activity reflects efficiency gains that the Company has realized, which enable the Company to complete approximately 10% more lateral feet year over year on approximately 90% of the capital. Oil production volumes are expected to increase 10% to 12% year over year (pro forma for the sale of the New Mexico Shelf assets). First-quarter 2020 production is expected to be 316 to 325 MBoepd (202 to 208 MBopd).

60% Increase in Quarterly Dividend

Our high-quality asset base and strong operating margins provide sustainable free cash flow growth that supports increasing returns to shareholders. Consistent with Concho's strategic priorities to grow margins, free cash flow and distributions to shareholders, the Company's Board of Directors approved a 60% increase to the quarterly dividend, from $0.125 to $0.20 per share. The next quarterly dividend is payable on March 27, 2020, to stockholders of record as of February 28, 2020.

Commodity Derivatives Update

The Company’s commodity derivatives strategy is intended to manage its exposure to commodity price fluctuations. Please see the table under “Derivatives Information” below for detailed information about Concho’s current derivatives positions.

Concho Resources Inc
Consolidated Balance Sheets 
Unaudited 
 
 
(in millions, except share and per share amounts)  December 31,
2019 
  December 31,
2018 
Assets 
Current assets:       
Cash and cash equivalents  70      —   
Accounts receivable, net of allowance for doubtful accounts:       
Oil and natural gas  584      466   
Joint operations and other  304      365   
Inventory  30      35   
Derivative instruments      484   
Prepaid costs and other  61      59   
Total current assets  1,055      1,409   
Property and equipment:       
Oil and natural gas properties, successful efforts method  28,785      31,706   
Accumulated depletion and depreciation  (7,895    (9,701 
Total oil and natural gas properties, net  20,890      22,005   
Other property and equipment, net  437      308   
Total property and equipment, net  21,327      22,313   
Deferred loan costs, net      10   
Goodwill  1,917      2,224   
Intangible assets, net  17      19   
Noncurrent derivative instruments  11      211   
Other assets  398      108   
Total assets  24,732      26,294   
Liabilities and Stockholders’ Equity 
Current liabilities:       
Accounts payable - trade  53      50   
Book overdrafts  —      159   
Revenue payable  268      253   
Accrued drilling costs  386      574   
Derivative instruments  112      —   
Other current liabilities  363      320   
Total current liabilities  1,182      1,356   
Long-term debt  3,955      4,194   
Deferred income taxes  1,654      1,808   
Noncurrent derivative instruments      —   
Asset retirement obligations and other long-term liabilities  152      168   
Stockholders’ equity:       
Common stock, $0.001 par value; 300,000,000 authorized; 198,863,681 and 201,288,884 shares issued at December 31, 2019 and 2018, respectively  —      —   
Additional paid-in capital  14,608      14,773   
Retained earnings  3,320      4,126   
Treasury stock, at cost; 1,175,026 and 1,031,655 shares at December 31, 2019 and 2018, respectively  (146    (131 
Total stockholders’ equity  17,782      18,768   
Total liabilities and stockholders’ equity  24,732      26,294   
       
 
Concho Resources Inc
Consolidated Statements of Operations 
Unaudited 
 
 
  Three Months Ended
December 31, 
  Years Ended
December 31, 
(in millions, except per share amounts)  2019    2018    2019    2018 
Operating revenues:               
Oil sales  1,119      898      4,126      3,443   
Natural gas sales  127      169      466      708   
Total operating revenues  1,246      1,067      4,592      4,151   
Operating costs and expenses:               
Oil and natural gas production  164      174      716      590   
Production and ad valorem taxes  94      76      349      305   
Gathering, processing and transportation  42      19      115      55   
Exploration and abandonments  111      29      201      65   
Depreciation, depletion and amortization  533      445      1,964      1,478   
Accretion of discount on asset retirement obligations          10      10   
Impairments of long-lived assets      —      890      —   
Impairments of goodwill  201      —      282      —   
General and administrative (including non-cash stock-based compensation of $18 and $24 for the three months ended December 31, 2019 and 2018, respectively, and $85 and $82 for the years ended December 31, 2019 and 2018, respectively)  72      90      326      311   
(Gain) loss on derivatives  450      (1,625    895      (832 
(Gain) loss on disposition of assets, net  133      (81    (170    (800 
Transaction costs  —      —          39   
Total operating costs and expenses  1,804      (870    5,579      1,221   
Income (loss) from operations  (558    1,937      (987    2,930   
Other income (expense):               
Interest expense  (44    (46    (185    (149 
Other, net      —      313      108   
Total other income (expense)  (42    (46    128      (41 
Income (loss) before income taxes  (600    1,891      (859    2,889   
Income tax (expense) benefit  129      (378    154      (603 
Net income (loss)  (471    1,513      (705    2,286   
Earnings per share:               
Basic net income (loss)  (2.38    7.56      (3.55    13.28   
Diluted net income (loss)  (2.38    7.55      (3.55    13.25   
               

Concho Resources Inc.
Earnings per Share
Unaudited

The Company uses the two-class method of calculating earnings per share because certain of the Company’s unvested share-based awards qualify as participating securities.

The Company’s basic earnings (loss) per share attributable to common stockholders is computed as (i) net income (loss) as reported, (ii) less participating basic earnings (iii) divided by weighted average basic common shares outstanding. The Company’s diluted earnings (loss) per share attributable to common stockholders is computed as (i) basic earnings (loss) attributable to common stockholders, (ii) plus reallocation of participating earnings (iii) divided by weighted average diluted common shares outstanding.

The following table reconciles the Company’s earnings (loss) from operations and earnings (loss) attributable to common stockholders to the basic and diluted earnings (loss) used to determine the Company’s earnings per share amounts for the periods indicated under the two-class method:

  Three Months Ended
December 31, 
  Years Ended
December 31, 
(in millions)  2019    2018    2019    2018 
Net income (loss) as reported  (471    1,513      (705    2,286   
Participating basic earnings (a)  —      (10    (1    (17 
Basic earnings (loss) attributable to common stockholders  (471    1,503      (706    2,269   
Reallocation of participating earnings  —      —      —      —   
Diluted earnings (loss) attributable to common stockholders  (471    1,503      (706    2,269   
               
(a) Unvested restricted stock awards represent participating securities because they participate in nonforfeitable dividends or distributions with the common equity holders of the Company. Participating earnings represent the distributed and undistributed earnings of the Company attributable to the participating securities. Unvested restricted stock awards do not participate in undistributed net losses as they are not contractually obligated to do so. 

The following table is a reconciliation of the basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the periods indicated:

  Three Months Ended
December 31, 
  Years Ended
December 31, 
(in thousands)  2019    2018    2019    2018 
Weighted average common shares outstanding:               
Basic  198,121      198,885      198,984      170,925   
Dilutive performance units  —      269      —      324   
Diluted  198,121      199,154      198,984      171,249   
               
 
Concho Resources Inc
Consolidated Statements of Cash Flows 
Unaudited 
 
 
  Years Ended
December 31, 
(in millions)  2019    2018 
CASH FLOWS FROM OPERATING ACTIVITIES:       
Net income (loss)  (705    2,286   
Adjustments to reconcile net income (loss) to net cash provided by operating activities:       
Depreciation, depletion and amortization  1,964      1,478   
Accretion of discount on asset retirement obligations  10      10   
Impairments of long-lived assets  890      —   
Impairments of goodwill  282      —   
Exploration and abandonments  166      35   
Non-cash stock-based compensation expense  85      82   
Deferred income taxes  (154    605   
Net gain on disposition of assets and other non-operating items  (459    (800 
(Gain) loss on derivatives  895      (832 
Net settlements paid on derivatives  (98    (218 
Other  —      (92 
Changes in operating assets and liabilities, net of acquisitions and dispositions:       
Accounts receivable  (90    (35 
Prepaid costs and other  (2    (10 
Inventory      (12 
Accounts payable       
Revenue payable  28      52   
Other current liabilities  20       
Net cash provided by operating activities  2,836      2,558   
CASH FLOWS FROM INVESTING ACTIVITIES:       
Additions to oil and natural gas properties  (3,069    (2,496 
Acquisitions of oil and natural gas properties  (54    (136 
Additions to property, equipment and other assets  (117    (90 
Proceeds from the disposition of assets  1,260      361   
Direct transaction costs for asset acquisitions and dispositions  (13    (3 
Distribution from equity method investment  —      148   
Net cash used in investing activities  (1,993    (2,216 
CASH FLOWS FROM FINANCING ACTIVITIES:       
Borrowings under credit facility  2,935      3,316   
Payments on credit facility  (3,177    (3,396 
Issuance of senior notes, net  —      1,595   
Repayments of RSP debt  —      (1,690 
Debt extinguishment costs  —      (83 
Payments for loan costs  —      (16 
Payment of common stock dividends  (100    —   
Purchases of treasury stock  (15    (64 
Purchases of common stock under share repurchase program  (250    —   
Decrease in book overdrafts  (159    (4 
Other  (7    —   
Net cash used in financing activities  (773    (342 
Net increase in cash and cash equivalents  70      —   
Cash and cash equivalents at beginning of period  —      —   
Cash and cash equivalents at end of period  70      —   
SUPPLEMENTAL CASH FLOWS:       
Cash paid for interest  207      118   
Cash paid for income taxes  —       
NON-CASH INVESTING AND FINANCING ACTIVITIES:       
Issuance of common stock for business combinations  —      7,549   
       
 
Concho Resources Inc
Summary Production and Price Data 
Unaudited 
 
The following table sets forth summary information concerning production and operating data for the periods indicated: 
 
 
  Three Months Ended
December 31, 
  Years Ended
December 31, 
  2019    2018    2019    2018 
Production and operating data:               
Net production volumes:               
Oil (MBbl)  19,767      18,304      76,369      61,251   
Natural gas (MMcf)  67,581      59,693      266,865      208,326   
Total (MBoe)  31,031      28,253      120,847      95,972   
               
Average daily production volumes:               
Oil (Bbl)  214,859      198,957      209,230      167,811   
Natural gas (Mcf)  734,576      648,837      731,137      570,756   
Total (Boe)  337,288      307,097      331,086      262,937   
               
Average prices per unit: (a)               
Oil, without derivatives (Bbl)  56.63      49.10      54.03      56.22   
Oil, with derivatives (Bbl) (b)  53.79      50.81      52.35      52.73   
Natural gas, without derivatives (Mcf)  1.88      2.82      1.74      3.40   
Natural gas, with derivatives (Mcf) (b)  2.12      2.63      1.86      3.37   
Total, without derivatives (Boe)  40.17      37.78      38.00      43.25   
Total, with derivatives (Boe) (b)  38.88      38.47      37.19      40.98   
               
Operating costs and expenses per Boe: (a)               
Oil and natural gas production  5.29      6.15      5.93      6.14   
Production and ad valorem taxes  3.04      2.71      2.89      3.19   
Gathering, processing and transportation  1.38      0.68      0.96      0.58   
Depreciation, depletion and amortization  17.20      15.74      16.25      15.41   
General and administrative  2.33      3.20      2.69      3.25   
(a)  Per unit and per Boe amounts calculated using dollars and volumes rounded to thousands. 
                 
(b)  Includes the effect of net cash receipts from (payments on) derivatives: 
                 
    Three Months Ended
December 31, 
  Years Ended
December 31, 
  (in millions)  2019    2018    2019    2018 
  Net cash receipts from (payments on) derivatives:               
  Oil derivatives  (57    32      (129    (213 
  Natural gas derivatives  16      (12    31      (5 
  Total  (41    20      (98    (218 
                 
                 
  The presentation of average prices with derivatives is a result of including the net cash receipts from (payments on) commodity derivatives that are presented in the Company's consolidated statements of cash flows. This presentation of average prices with derivatives is a means by which to reflect the actual cash performance of the Company's commodity derivatives for the respective periods and presents oil and natural gas prices with derivatives in a manner consistent with the presentation generally used by the investment community. 
                 
Concho Resources Inc
Operational Activity 
Unaudited 
 
The tables below provide a summary of operational activity for fourth-quarter and full-year 2019: 
 
Total Activity (Gross): 
 
    Number of Wells
Drilled 
  Number of Wells
Completed 
  Number of Wells
Put on Production 
    4Q19    FY19    4Q19    FY19    4Q19    FY19 
Delaware Basin    48    299    82    268    84    294 
Midland Basin    35    155    42    171    33    185 
Total    83    454    124    439    117    479 
                         
Total Activity (Gross Operated): 
    Number of Wells
Drilled 
  Number of Wells
Completed 
  Number of Wells
Put on Production 
    4Q19    FY19    4Q19    FY19    4Q19    FY19 
Delaware Basin    34    150    40    158    65    192 
Midland Basin    33    130    29    136    21    145 
Total    67    280    69    294    86    337 
                         
Total Activity (Net Operated): 
    Number of Wells
Drilled 
  Number of Wells
Completed 
  Number of Wells
Put on Production 
    4Q19    FY19    4Q19    FY19    4Q19    FY19 
Delaware Basin    31    122    38    134    57    157 
Midland Basin    26    104    23    112    20    123 
Total    57    226    61    246    77    280 
                         
 
Concho Resources Inc
Estimated Year-End Proved Reserves 
Unaudited 
 
The table below provides a summary of changes in total proved reserves for the year ended December 31, 2019, as well as the proved developed reserves balance at the beginning and end of the year. 
 
(MMBoe)  2019 
Total proved reserves   
Balance, January 1  1,187   
Purchases of minerals-in-place   
Sales of minerals-in-place  (105 
Extensions and discoveries  177   
Revisions  (145 
Production  (121 
Balance, December 31  1,002   
   
Proved developed reserves   
Balance, January 1  824   
Balance, December 31  745   
   
 
Concho Resources Inc
Costs Incurred 
Unaudited 
 
The table below provides the costs incurred for oil and natural gas producing activities for the periods indicated: 
 
  Three Months Ended
December 31, 
  Years Ended
December 31, 
(in millions)  2019    2018    2019    2018 
Property acquisition costs:               
Proved      10          4,136   
Unproved  17      21      50      3,617   
Exploration  328      529      1,637      1,588   
Development  286      397      1,358      1,050   
Total costs incurred  639      957      3,053      10,391   
               
 
Concho Resources Inc
Derivatives Information 
Unaudited 
 
The table below provides data associated with the Company’s derivatives at February 18, 2020, for the periods indicated: 
 
 
                             
    2020         
    First
Quarter 
  Second
Quarter 
  Third
Quarter 
  Fourth
Quarter 
  Total    2021    2022 
Oil Price Swaps – WTI: (a)                             
Volume (MBbl)    14,674      12,494      11,080      10,045      48,293      18,977      —   
Price per Bbl    57.13      56.90      56.88      57.00      56.98      54.21      —   
Oil Price Swaps – Brent: (b)                             
Volume (MBbl)    2,578      2,031      1,768      1,503      7,880      —      —   
Price per Bbl    60.78      60.33      60.29      60.14      60.43      —      —   
Oil Basis Swaps: (c)                             
Volume (MBbl)    14,951      12,376      11,165      10,181      48,673      20,440      —   
Price per Bbl    (0.43    (0.41    (0.57    (0.70    (0.52    0.68      —   
Natural Gas Price Swaps - Henry Hub: (d)                             
Volume (BBtu)    35,023      32,314      30,038      28,498      125,873      69,350      36,500   
Price per MMBtu    2.46      2.46      2.47      2.47      2.47      2.44      2.38   
Natural Gas Basis Swaps - HH/EPP: (e)                             
Volume (BBtu)    25,770      23,960      22,080      21,770      93,580      51,100      29,200   
Price per MMBtu    (1.06    (1.07    (1.07    (1.07    (1.07    (0.78    (0.72 
Natural Gas Basis Swaps - HH/WAHA: (f)                             
Volume (BBtu)    7,280      7,280      7,360      7,360      29,280      18,250      7,300   
Price per MMBtu    (1.10    (1.10    (1.10    (1.10    (1.10    (0.92    (0.85 
                             
(a)   These oil derivative contracts are settled based on the New York Mercantile Exchange (“NYMEX”) – West Texas Intermediate (“WTI”) calendar-month average futures price. 
(b)  These oil derivative contracts are settled based on the Brent calendar-month average futures price. 
(c)  The basis differential price is between Midland – WTI and Cushing – WTI. These contracts are settled on a calendar-month basis. 
(d)  The natural gas derivative contracts are settled based on the NYMEX – Henry Hub last trading day futures price. 
(e)  The basis differential price is between NYMEX – Henry Hub and El Paso Permian. 
(f)  The basis differential price is between NYMEX – Henry Hub and WAHA. 
   

Concho Resources Inc.
Supplemental Non-GAAP Financial Measures
Unaudited

The Company reports its financial results in accordance with the United States generally accepted accounting principles (GAAP). However, the Company believes certain non-GAAP performance measures may provide financial statement users with additional meaningful comparisons between current results, the results of its peers and the results of prior periods. In addition, the Company believes these measures are used by analysts and others in the valuation, rating and investment recommendations of companies within the oil and natural gas exploration and production industry. See the reconciliations throughout this release of GAAP financial measures to non-GAAP financial measures for the periods indicated.

Reconciliation of Net Income (Loss) to Adjusted Net Income and Adjusted Earnings per Share

The Company’s presentation of adjusted net income and adjusted earnings per share that exclude the effect of certain items are non-GAAP financial measures. Adjusted net income and adjusted earnings per share represent earnings (loss) and diluted earnings (loss) per share determined under GAAP without regard to certain non-cash and special items. The Company believes these measures provide useful information to analysts and investors for analysis of its operating results on a recurring, comparable basis from period to period. Adjusted net income and adjusted earnings per share should not be considered in isolation or as a substitute for earnings (loss) or diluted earnings (loss) per share as determined in accordance with GAAP and may not be comparable to other similarly titled measures of other companies.

The following table provides a reconciliation from the GAAP measure of net income (loss) to adjusted net income, both in total and on a per diluted share basis, for the periods indicated:

  Three Months Ended
December 31, 
  Years Ended
December 31, 
(in millions, except per share amounts)  2019    2018    2019    2018 
Net income (loss) - as reported  (471    1,513      (705    2,286   
Adjustments for certain non-cash and special items:               
(Gain) loss on derivatives  450      (1,625    895      (832 
Net cash received from (payments on) derivatives  (41    20      (98    (218 
Impairments of long-lived assets      —      890      —   
Impairments of goodwill  201      —      282      —   
Leasehold abandonments  88      15      147      35   
(Gain) loss on disposition of assets and other  133      (82    (456    (792 
Gain on equity method investments  —      —      (17    (103 
RSP transaction costs  —      —      —      32   
Tax impact (a)  (136    380      (301    426   
Changes in deferred taxes and other estimates  (20    (32    (26    (42 
Adjusted net income  206      189      611      792   
Earnings (loss) per diluted share - as reported  (2.38    7.55      (3.55    13.25   
Adjustments for certain non-cash and special items per diluted share:               
(Gain) loss on derivatives  2.28      (8.11    4.50      (4.82 
Net cash received from (payments on) derivatives  (0.21    0.10      (0.49    (1.27 
Impairments of long-lived assets  0.01      —      4.46      —   
Impairments of goodwill  1.01      —      1.41      —   
Leasehold abandonments  0.44      0.07      0.74      0.20   
(Gain) loss on disposition of assets and other  0.67      (0.40    (2.29    (4.59 
Gain on equity method investments  —      —      (0.09    (0.60 
RSP transaction costs  —      —      —      0.19   
Tax impact  (0.69    1.89      (1.51    2.47   
Changes in deferred taxes and other estimates  (0.10    (0.16    (0.13    (0.24 
Adjusted earnings per diluted share  1.03      0.94      3.05      4.59   
Adjusted earnings per share:               
Basic earnings  1.03      0.94      3.05      4.60   
Diluted earnings  1.03      0.94      3.05      4.59   
               
(a) Estimated using statutory tax rate in effect for the period. 
               

Reconciliation of Net Income (Loss) to Adjusted EBITDAX

Adjusted EBITDAX (as defined below) is presented herein and reconciled from the GAAP measure of net income (loss) because of its wide acceptance by the investment community as a financial indicator.

The Company defines adjusted EBITDAX as net income (loss), plus (1) exploration and abandonments, (2) depreciation, depletion and amortization, (3) accretion of discount on asset retirement obligations, (4) impairments of long-lived assets, (5) impairments of goodwill, (6) non-cash stock-based compensation, (7) (gain) loss on derivatives, (8) net cash receipts from (payments on) derivatives, (9) (gain) loss on disposition of assets and other, (10) interest expense, (11) gain on equity method investments, (12) RSP transaction costs and (13) income tax expense (benefit). Adjusted EBITDAX is not a measure of net income (loss) or cash flows as determined by GAAP.

The Company’s adjusted EBITDAX measure provides additional information that may be used to better understand the Company’s operations. Adjusted EBITDAX is one of several metrics that the Company uses as a supplemental financial measurement in the evaluation of its business and should not be considered as an alternative to, or more meaningful than, net income (loss) as an indicator of operating performance. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX, as used by the Company, may not be comparable to similarly titled measures reported by other companies. The Company believes that adjusted EBITDAX is a widely followed measure of operating performance and is one of many metrics used by the Company’s management team and by other users of the Company’s consolidated financial statements. For example, adjusted EBITDAX can be used to assess the Company’s operating performance and return on capital in comparison to other independent exploration and production companies without regard to financial or capital structure, and to assess the financial performance of the Company’s assets and the Company without regard to capital structure or historical cost basis.

The following table provides a reconciliation of the GAAP measure of net income (loss) to adjusted EBITDAX for the periods indicated:

  Three Months Ended
December 31, 
  Years Ended
December 31, 
(in millions)  2019    2018    2019    2018 
Net income (loss)  (471    1,513      (705    2,286   
Exploration and abandonments  111      29      201      65   
Depreciation, depletion and amortization  533      445      1,964      1,478   
Accretion of discount on asset retirement obligations          10      10   
Impairments of long-lived assets      —      890      —   
Impairments of goodwill  201      —      282      —   
Non-cash stock-based compensation  18      24      85      82   
(Gain) loss on derivatives  450      (1,625    895      (832 
Net cash receipts from (payments on) derivatives  (41    20      (98    (218 
(Gain) loss on disposition of assets and other  133      (82    (456    (800 
Interest expense  44      46      185      149   
Gain on equity method investments  —      —      (17    (103 
RSP transaction costs  —      —      —      32   
Income tax expense (benefit)  (129    378      (154    603   
Adjusted EBITDAX  853      751      3,082      2,752   
               

Reconciliation of Net Cash Provided by Operating Activities to Operating Cash Flow Before Working Capital Changes and to Free Cash Flow

The Company provides Operating Cash Flow (OCF) before working capital changes, which is a non-GAAP financial measure. OCF before working capital changes represents net cash provided by operating activities as determined under GAAP without regard to changes in operating assets and liabilities, net of acquisitions and dispositions as determined in accordance with GAAP. The Company believes OCF before working capital changes is an accepted measure of an oil and natural gas company’s ability to generate cash used to fund development and acquisition activities and service debt or pay dividends. Additionally, the Company provides free cash flow, which is a non-GAAP financial measure. Free cash flow is cash flow from operating activities before changes in working capital in excess of exploration and development costs incurred. The Company believes that free cash flow is useful to investors as it provides measures to compare cash from operating activities and exploration and development costs across periods on a consistent basis.

These non-GAAP measures should not be considered as alternatives to, or more meaningful than, net cash provided by operating activities as indicators of operating performance.

The following tables provide a reconciliation from the GAAP measure of net cash provided by operating activities to OCF before working capital changes and to free cash flow:

  Three Months Ended
December 31, 
  Years Ended
December 31, 
(in millions)  2019    2018    2019    2018 
Net cash provided by operating activities  769      697      2,836      2,558   
Changes in cash due to changes in operating assets and liabilities:               
Accounts receivable  71      (22    90      35   
Prepaid costs and other      (5        10   
Inventory      —      (1    12   
Accounts payable  13      (28    (3    (1 
Revenue payable  (48    10      (28    (52 
Other current liabilities  (6    44      (20    (8 
Total working capital changes  32      (1    40      (4 
Operating cash flow before working capital changes  801      696      2,876      2,554   
               
  Three Months Ended
December 31, 
  Years Ended
December 31, 
(in millions)  2019    2018    2019    2018 
Operating cash flow before working capital changes  801      696      2,876      2,554   
Exploration and development costs  614      926      2,995      2,638   
Free cash flow  187      (230    (119    (84 
               
 
Concho Resources Inc
2020 Guidance 
 
The following table summarizes the Company’s operational and financial guidance for 2020. 
 
 
  2020 
Production growth, pro forma for New Mexico Shelf asset sale   
Total production growth  6% - 8% 
Oil production growth  10% - 12% 
   
Price realizations, excluding commodity derivatives   
Oil differential (per Bbl) (Excludes basis differential)  ($1.00) - ($2.00) 
Natural gas (per Mcf) (% of NYMEX - Henry Hub)  30% - 50% 
   
Operating costs and expenses ($ per Boe, unless noted)   
Lease operating expense and workover costs  $5.50 - $5.80 
Gathering, processing and transportation  $1.30 - $1.50 
Oil & natural gas taxes (% of oil and natural gas revenues)  8.10% 
General and administrative ("G&A") expense:   
Cash G&A expense  $1.90 - $2.00 
Non-cash stock-based compensation  $0.70 - $0.90 
Depletion, depreciation and amortization expense  $17.25 - $18.25 
Cash exploration and other  $0.30 - $0.60 
Interest expense ($ in millions):  $190 
Income tax rate (%)  23% - 25% 
   
Capital program ($ in billions)  $2.6 - $2.8 
   
Gross Operated Activity   
Drilled  280-300 
Completed  300-320 
Put on Production  280-300 
Source: EvaluateEnergy® ©2020 EvaluateEnergy Ltd