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Delaware Basin Helps Push Concho's Production 4% Higher Quarter/Quarter

Led by burgeoning production in the Permian Basin’s Delaware sub-basin, Concho Resources Inc. saw total production reach 13.2 million boe in the second quarter, a 4% increase compared to 1Q2016, the Midland, TX-based independent said.

Production, which was weighted 62% oil and 38% natural gas, exceeded the high end of Concho's guidance range.

"The momentum we are generating, combined with the scale of our core assets in the Permian Basin, reinforces our 2017 outlook for double-digit production growth while continuing to balance capital and cash flow," CEO Tim Leach said in a conference call with analysts Wednesday morning.

Concho announced a trio of deals in January that it said would help bolster its position in the southern Delaware and reduce its net debt, all without impacting its capital budget or production outlook for 2016 (see Shale DailyJan. 19). In three separate deals, Concho acquired 12,000 net acres adjacent to its North Harpoon prospect in Reeves and Ward counties in Texas, agreed to an acreage exchange that would consolidate 21,000 net nonoperated acres into an operated position adjacent to its Big Chief prospect in Reeves County, and agreed to sell 14,000 net acres in Loving County, TX.

Concho's Permian strategy appears to be paying dividends, with production from horizontal wells in the Delaware totaling 88,500 boe/d in the second quarter, an 8% increase compared with 2Q2015.

Concho drilled 28 gross wells in the Delaware in 2Q2016, including 12 wells in the Wolfcamp, nine in the Bone Spring Sands and seven in the oil-rich Avalon Shale in Lea County, NM. The Avalon Shale program "has delineated the multi-zone potential, with production data indicating that the upper and lower zones are distinct targets, which has positive implications for the development outlook of the play," Concho said.

"The Red Hills area in Lea County is an area where we've targeted bolt-on acquisitions for long lateral development," Leach said. "During the second half of the year, we plan to drill several long lateral wells targeting the Avalon. And we'll look to replicate our success in the Wolfcamp, where we believe significant upside exists."

Concho averaged 13 rigs in 2Q2016, compared to 10 rigs in 1Q2016, and started drilling or participating in a total of 55 gross wells (48 operated wells) and completed 55 gross wells. It currently has eight horizontal rigs in the Delaware split evenly between the play's northern and southern tiers, six horizontal rigs in the Midland sub-basin, and two horizontal rigs in the New Mexico Shelf.

Concho expects production in 3Q2016 to average 144-148 million b/d. Net loss for 2Q2016 was $265.7 million (minus $2.04/share), compared with a net loss of $120.5 million ($1.02) in 2Q2015, Concho said.

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