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Analyzing Concho Resources’ Debt Position

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CXO’s net debt-to-EBITDA

Concho Resources’ (CXO) net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) has shown a falling trend, mirroring movements in its net debt, which has also fallen.

The company’s net debt-to-EBITDA ratio was mostly above 2.5x in 2015, but it’s currently trading at ~1.8x.

CXO’s EBITDA actually rose in 4Q15 and 1Q16. Combined with reductions in net debt, CXO’s rising EBITDA resulted in lower net debt-to-EBITDA multiples in both quarters, as the image above shows.

From 4Q14 to 3Q15, CXO’s EBITDA was falling, which explains its higher net debt-to-EBITDA multiple in these periods.

CXO’s 1Q16 net debt was ~$2.9 billion compared to $3.4 billion in 1Q15. Its trailing-12-month adjusted EBITDA as of 1Q16 was $1.6 billion compared to its 1Q15 trailing-12-month EBITDA of ~$1.2 billion.

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Peer group comparison

In comparison, upstream companies such as Cimarex Energy (XEC), Continental Resources (CLR), and Hess (HES) saw lower EBITDA levels due to lower crude oil prices (USO). Their respective 1Q16 EBITDAs for the trailing 12 months fell by 54%, ~48.5%, and ~56%, respectively.

Together, these companies make up ~9% of the iShares US Oil & Gas Exploration & Production ETF (IEO).

Liquidity and financial position

Concho Resources noted that it had $0.5 billion in cash and cash equivalents as of March 31, 2015. It also has $2.5 billion from an unused credit facility.

Continue on to the next part to read about CXO’s free cash flow trends.

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