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Will Concho Resources Meet Updated Production Guidance for 2015?

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Concho Resources’ production guidance

In its 3Q15 earnings call, Concho Resources (CXO) updated its fiscal 2015 production growth guidance to 27%–28% from the previous growth guidance of 24%–26% it had provided in 2Q15. Production in 4Q15 is expected to come in between 139 Mboe/d (thousand barrels of oil equivalent per day) and 143 Mboe/d. Concho Resources expects to maintain 2015 production levels YoY (year-over-year) in 2016. Detailed guidance will be provided in the 4Q15 earnings release.

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CXO’s lower cost and capital expenditure

CXO reduced its LOE (lease operating expense) by ~12% YoY in 3Q15. General and administrative expenses were down 16%. Additionally, CXO reduced its capital spending in 2015 by 24% and anticipates spending even less in 2016. The midpoint of CXO’s 2016 capital budget is ~$1.4 billion.

Many upstream companies have been following similar steps to reduce production costs and capital expenditure in response to lower energy prices. Newfield Exploration Company (NFX) expects its LOE to be 25% lower in 2015 than in 2014. Apache Corporation’s (APA) LOE was down 18% in 3Q15 compared to 3Q14. ConocoPhillips’s (COP) operating cost guidance for 2016 is 12.5% lower than in 2015. NFX, APA, and COP make up ~6% of the Energy Select Sector SPDR Fund (XLE).

CXO’s hedges and leverage

CXO’s had a strong hedge position in 2015 and has hedged ~60% of its 2016 estimated crude oil volumes.

CXO’s net debt-to-EBITDAX (earnings before interest, tax, depreciation, amortization, and exploration expenses) ratio is expected to remain under two times through 2016. CXO will focus on funding its 2016 capital budget within cash flow while maintaining its leverage ratio and keeping up the momentum in its operational efficiencies.

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