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Our National Oil Boom isn't Benefiting Everyone Equally

By Matthew DiLallo – Feb 23, 2014 at 1:15PM

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Production jumps 20% at Concho Resources Inc. in 2013. Expect another big jump in production this year.

Photo credit: Flickr/Roy Luck

Concho Resources (CXO) is in the sweet spot of the Texas oil boom. Its Permian Basin acreage fueled a 20% jump in its production last year. It is also fueling a nice surge in the company's underlying earnings and cash flow. Let's take a look.

Drilling down into the numbers
Concho Resources recently reported its fourth-quarter and full-year numbers. While full-year net income of $251 million, or $2.39 per share fell year-over-year, that was due to several one-time items. The underlying cash flow generation of the business was solid. EBITDAX was up 14% to $1.7 billion while cash flow from operating activities was up 10% to $1.36 billion.

More importantly at this stage in the company's growth was the 20% jump in total production to 33.6 million barrels of oil equivalent. That worked out to 21.1 million barrels of oil and another 75.1 billion cubic feet of natural gas. This was despite hitting some weather related curtailments that plagued west Texas in the quarter.

The quarter also marked the company's 16th straight quarterly increase in oil production. That's a trend that won't be ending anytime soon as the company is entering the first year of an accelerated multi-year program to double its production by 2016. To that end investors can expect to see the company grow its production by 18%-22% in 2014 while compound annual growth hits 25% in later years as it stretches to reach its target to double production by 2016.

 

Photo credit: Flickr/Casey Fiesler

In the sweet spot of the next hot oil play
Concho Resources is one of a handful of companies that are in the sweet spot of the next big Texas oil play. It has about 605,000 net acres and over 22,000 identified future drilling locations. Because of this it sees its resource potential being at least six times proved reserves.

Peers like Laredo Petroleum Inc (LPI -4.22%) and Apache Corporation (APA -0.40%) see significant resource potential in the Permian Basin. Laredo Petroleum, for example, sees its resource potential being at least ten times its existing proved reserves. Because of this Laredo Petroleum expects to grow its production by 30%-35% annually through 2016.

Apache, on the other hand, has focused on slimming down its overseas operations so that it can focus on growing in places like the Permian Basin. While its acreage in the Mid-Continent offers more resource potential, Apache still sees its Permian Basin resource potential growing from about 800 million BOE to 4.3 billion BOE as it continues to develop its position. Overall, Apache sees the potential to drill 34,500 wells in the Permian Basin.

The list goes on, but one thing is certain, the Permian Basin is simply loaded with oil rich potential. That's great news for Concho Resources' investors as it is one of the companies that has locked in a position in its sweet spot.

Investor takeaway
Concho Resources is growing fast. While its production is currently growing faster than earnings and cash flow, that's to be expected. This is a company on pace to double its production in just a few short years. While the energy boom is fueling growth at a lot of companies, few companies outside of Laredo Petroleum are on pace to double production as fast as Concho Resources.

Three more stocks to profit off of the oil boom

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Concho Resources Stock Quote
Concho Resources
CXO
Apa Stock Quote
Apa
APA
$43.69 (-0.40%) $0.18
Laredo Petroleum Stock Quote
Laredo Petroleum
LPI
$52.82 (-4.22%) $-2.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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