Permian Basin pure-play Concho Resources Inc. has reduced capital spending for 2020, but it still expects to lift oil volumes in 2020 by 10-12%, CEO Tim Leach said Wednesday.

The Midland, TX-based independent issued its fourth quarter results, with Leach and his management team offering their take on performance during a conference call.

The cost structure solidly improved last year, as Concho continued to reduce controllable costs such as lease operating and workover expenses. The company had set a target for the end of this year to reduce costs to $9.00/boe. During 4Q2019, those controllable costs averaged $8.43/boe, down 17% from 4Q2018.

“We carry this focus into 2020,” Leach said. “Our strategic priorities are to grow margins, grow free cash flow, grow distributions and advance our sustainability progress. We are off to a strong start,” with oil production expected to improve by double digits.

The company, which works in the Delaware and Midland sub-basins, said production overall improved by 10% year/year to 337,000 boe/d. Oil volumes increased 8% to 215,000 b/d, while natural gas output rose to 735 MMcf/d from 649 MMcf/d.

The efficiency gains should allow Concho to complete 300-320 operated wells (gross) this year, with average lateral lengths of 10,000 feet. Last year, 294 wells were completed with average laterals of 9,000 feet.

The reduced costs are allowing 10% more lateral feet year/year for wells on about 90% of the capital, Leach noted.

Still, the Permian is beset with some environmental-related issues, as associated gas from oil production has led to high gas flaring/venting rates.

Concho, said Leach, is “advancing sustainability” in its operations, as stakeholders are seeking more transparency. “We take this seriously. Our flared volumes averaged 1.6% of gross in 2019 versus 2.7% in 2018,” he said of Permian gas production.

The company also has published a 2-degree scenario report to reduce emissions.

Reducing overall global carbon emissions by 2 degrees is a goal of the United Nations climate change accord, from which the Trump administration plans to formally withdraw this year. However, it’s a priority for shareholders, Leach said.

“There’s a lot of push obviously on the industry and from within the industry to continue to move that number down,” he said of high flaring figures. “So that’s a big focal point here.” What is required is “additional pipeline development and there are, fortunately, a couple in the queue. As for now, we are happy with our providers and our agreements, and we are moving all of our gas…We don’t anticipate any change to our program in 2020 based on constraints.”

More wastewater recycling for oil and gas production in the Permian also has to be resolved, said Senior Vice President Erick Nelson, who runs operations and production.

“Water recycling is a big push right now,” he said. “For our sales and for industry to get to higher and higher percentages of water recycling, it’s going to require big trunkline shared third-party infrastructure…” That’s been a driving force behind related water transactions by Permian operators, “so that we can source more recycled water and also recycle an increasing percentage of our own.”

Concho also made strides in holding the line on debt. In early November, the $925 million sale of New Mexico Shelf assets was completed, which allowed the company to hit a debt reduction target and buy more shares as part of a $1.5 billion repurchasing program. The sustainable cash flow also led the way for a 60% jump in the quarterly dividend to 20 cents/share from 12.5 cents.

Still, one-time impairments nagged at the bottom line during the fourth quarter.

Net loss was $471 million, or (minus $2.38/share) in 4Q2019, compared with year-ago profits of $1.5 billion ($7.56). One-time impairments in 4Q2019 included a $201 million goodwill charge and a $133 million loss from selling assets. Net losses for the year totaled $705 million (minus $3.55/share), versus 2018 profits of $2.3 billion ($13.25).

Concho’s realized prices excluding commodity derivatives in 4Q2019 averaged $56.63/bbl for oil and $1.88/Mcf for gas. With hedging, realized oil prices averaged $53.79/bbl, versus 4Q2018’s $50.81. Hedged gas volumes fetched $2.12/Mcf compared with $2.63 in the year-ago period.

Estimated proved reserves at the end of 2019 fell from 2018 to 1.0 billion boe from 1.2 billion boe, which Concho attributed to the New Mexico Shelf sale, as well as performance revisions from well spacing tests and the decline in oil and natural gas prices.

Proved reserves were about 62% oil and 38% natural gas at the end of last year. Proved developed reserves totaled 745 million boe, or 74% of total proved reserves, compared with 69% at the end of 2018.

Want to see more earnings? See the full list of NGI’s 4Q2019 earnings season coverage.