While Concho Resources (CXO) has drawn a lot of advantages from being a Permian producer, some of the steps taken by its management have also helped it achieve its status as one of the leading Permian producers.
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Despite current energy market conditions, CXO has been making acquisitions without relying on debt and instead resorting to equity offerings. CXO’s superior performance in the stock market, as compared to peers and the larger energy industry (XLE) and the broader market (SPY), has enabled its management to finance such acquisitions via equity offerings.
Apart from adding quality assets to its portfolio, CXO has also been using the cash raised from equity offerings to reduce its debt. In 3Q16, CXO redeemed $600 million of 7.0% senior notes due January 2021.
One of the most notable efforts by Concho’s management has been to maintain balance sheet strength. As of September 30, 2016, CXO had long-term debt of $2.7 billion, which was down ~29% on a year-over-year basis. CXO’s liquidity totaled approximately $2.6 billion at the end of 3Q16, which included an undrawn revolving credit facility of $2.5 billion.
CXO’s management noted in the 3Q16 earnings conference that, “Over the next three years, at current strip price, we expect to generate 20% annualized production growth within cash flow, with our leverage ratio further improving as it trends to one time over this three-year period.”