Concho Resources has more than a hunch that a lucrative resource lies under its feet in Southeastern New Mexico and West Texas. The company explores and develops properties (more than 626,190 net acres), located primarily in the Permian Basin region, in which it produces oil and natural gas. The bulk of the company's reported 447.1 million barrels of proved reserves in 2012 is crude oil, while the rest is natural gas. Concho Resources gets more than 80% its revenues from crude oil, which is priced much higher than natural gas. The company drilled 513 net wells in 2012.
The company’s core oil and gas exploration and production operating areas are the New Mexico Shelf, Delaware Basin, and Texas Permian, in the Permian Basin region of Southeast New Mexico and West Texas. The New Mexico Shelf represented 50% of Concho Resources' total reserves in 2012; Texas Permian, 32%; and the Delaware Basin, 18%.
Sales and Marketing
The company’s major customers include HollyFrontier Refining and Marketing, ConocoPhillips, and DCP Midstream, which accounted for 26%, 14%, and 8%, respectively, of Concho Resources' revenues in 2012.
The company's revenues increased by 12% in 2012 thanks to higher oil prices and increased production due an expansion in drilling, as well as production from 2011 and 2012 acquisitions.
Net income dropped by 21% in 2012 primarily due to decreased income from discontinued operations, and increased depreciation expenses associated with new wells and acquisitions in 2011 and 2012. Production costs also rose due to increased production and acquisition-related expenses.
Acquisitions and increased demand for oil and gas helped to lift Concho Resources' revenues each year from 2008 through 2012.
The company has focused on expanding its holdings through medium- and large-sized complementary acquisitions.
To raise cash to help fund acquisitions, in 2012 Concho Resources sold some non-core Permian Basin oil and natural gas properties to Legacy Reserves for $520 million. It also sold its Bakken assets in North Dakota in 2011 to focus on its core Permian properties.
Mergers and Acquisitions
In 2012 the company acquired interests in the Wolfberry trend in the Permian Basin from Petroleum Development Corporation for $189.2 million. The acquisition added about 10,200 net acres to Concho Resources' holdings in the region and estimated proved oil reserves of about 10 million barrels of oil equivalent.
The company boosted its Permian holdings further in 2012 by buying all of the oil and gas assets of Three Rivers Operating Company for $1 billion. Three Rivers has estimated proved reserves of 45.5 million barrels of oil equivalent and 200,000 net acres in a handful of Permian plays.
Concho Resources acquired three entities affiliated with OGX Holdings II, LLC for $252 million. The OGX deal included producing and non-producing acreage in the Delaware Basin of Southeast New Mexico and West Texas representing about 5.7 million barrels of of proved oil equivalent reserves.