What happened

Shares of Concho Resources (NYSE:CXO) got crushed in August, plunging 25.1%, according to data provided by S&P Global Market Intelligence. Fueling the sell-off in the Permian Basin-focused oil producer was its poorly received second-quarter results.

So what

Concho Resources earned an adjusted $139 million, or $0.69 per share, during the second quarter, which missed the consensus estimate by $0.03 per share. Lower oil and natural gas prices were the main issues that weighed on its results.

But the company also disclosed that its 23-well Dominator project -- which tested how closely it could space wells -- underperformed expectations. That disappointing result caused the market to fear that the Permian Basin might be running out of top-tier drilling locations, which could hurt Concho's long-term prospects.

Oil pumps with a red sunset in the background.

Image source: Getty Images.

As a result of that failed test, and lower oil prices, Concho adjusted its near-term operational plans. It intends to increase the number of wells that it drills but doesn't complete, allowing it to build an inventory of locations that it can quickly bring on line when oil prices improve. This shift will cause the company's output to decline during the third quarter. But it also could enable it to make more money in the future, assuming oil prices improve when it brings those wells on line.

Now what

Concho believes that the second quarter was an outlier and that it can deliver improved results in the future. That's why the energy company recently sold a noncore asset to help launch a share repurchase program so it can take advantage of last month's plunge. At the current stock price, the buyback could retire more than 10% of its outstanding shares. That could allow its stock to bounce back sharply, especially if oil prices recover from their recent swoon.

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