Concho Resources Inc. (NYSE: CXO) (“Concho” or the “Company”) today provided a 2012 operational update, including full-year production, year-end estimated proved reserves and updated 2013 production guidance. Highlights include:
- Full-year production of 29.8 million barrels of oil equivalent (“MMBoe”), a 26% increase over 2011
- Year-end estimated proved reserves of 447.2 MMBoe, a 16% increase over year end 2011
- Reserve replacement ratio 1 of 422%
- Over 12,200 identified gross drilling opportunities, including over 4,200 in the northern Delaware Basin
- Increased 2013 production guidance range to 33.4 – 34.8 MMboe
The Company uses the reserve replacement ratio as an indicator of the Company's ability to replenish annual production volumes and grow its reserves, thereby providing some information on the sources of future production. It should be noted that the reserve replacement ratio is a statistical indicator that has limitations. The ratio is limited because it typically varies widely based on the extent and timing of discoveries and property acquisitions. Its predictive and comparative value is also limited for the same reasons. In addition, since the ratio does not imbed the cost or timing of future production of new reserves, it cannot be used as a measure of value creation. The reserve replacement ratio of 422% was calculated by dividing net proved reserve additions of 125.7 MMBoe (the sum of extensions, discoveries, revisions and purchases) by production of 29.8 MMBoe.
Since 2007, the same year Concho completed its initial public offering, through 2012 total proved reserves have grown at a five-year compounded annual growth rate of 37%. Proved reserves growth in 2012 was constrained by the limited development history in the Delaware Basin, Concho’s most significant area of capital investment. At year-end 2012, estimated proved reserves in the Delaware Basin increased 64% over year-end 2011, but represented only 18% of the Company’s total estimated proved reserves.