EUR 850.00 For Business Accounts Only

Morningstar | Concho Dialing Back on 2019 Drilling in Light of Lower Oil Prices

Narrow-moat-rated Concho Resources delivered production of 307.1 mboe/d in the fourth quarter, which was 7% higher sequentially and 45% higher year over year. This compares with our forecast of 308.9 mboe/d, and was within the previously guided range of 305-310 mboe/d. Realized prices and operating expenses were consistent with our forecasts as well. However, consensus was evidently setting a higher bar, given that the firm’s financial results slightly missed Street expectations. Adjusted EBITDA and adjusted earnings per share were $751 million and $0.94, respectively, (consensus estimates were $813 million and $1.12).

Based on the slump in WTI crude prices late last year the company has moderated its 2019 capital budget, and now plans to spend $2.9 billion (preliminary guidance after the third quarter suggested $3.4-$3.6 billion). As a result, production is now expected to increase by 21%-25% year over year, instead of 25-30%. And on an exit-to-exit basis, the same updated guidance translates to 10% growth in 2019 (down from 18%). This can be achieved with 340-360 wells, instead of the planned 390-410. As a result, instead of running 34 rigs this year management is now planning to wind the firm’s rig count down to 24 by the second half of the year. Expectations for 2019 unit costs are still broadly consistent with our prior estimates, though.

We plan to incorporate these operating and financial results in our model shortly, but after this first look our fair value estimate and narrow moat rating remain unchanged.