Permian Basin pure-play Concho Resources Inc. is moderating its operations, dropping rigs and reducing its production outlook, blaming it in part on weak natural gas and liquids prices.

The Midland, TX-based independent, which issued its results late Wednesday, exceeded its second quarter guidance with production of 329,000 boe/d. Operating costs also were in line or better than targets.

However, even though the company delivered on its metrics, t’s hard to argue with bleak commodity prices, CEO Tim Leach said.

Concho’s average realized price for oil was $56.02/bbl in 2Q2019, while natural gas fetched $1.16/Mcf. In 2Q2018, it had received $60.98 for the oil and $3.19 for the natural gas.

“We have made near-term adjustments to our operational plans that reinforce our commitment to capital discipline and maximizing free cash flow,” Leach said. “Moderating activity and building an inventory of drilled but uncompleted wells keeps us on track with our full-year capital plan, preserves our balance sheet and positions the company for an inflection in free cash flow and momentum heading into 2020.”

Concho now expects to produce 316,000-322,000 boe/d in the third quarter, with an oil mix of around 63% in the second half of 2019 as fewer new wells are planned to come online.

Additionally, because of weak gas and natural gas liquids pricing, the company has reduced its full-year 2019 price realization guidance to a range of 60% to 80% of New York Mercantile Exchange Henry Hub. Concho expects to trend “toward the low end of the range” in 3Q2019.

During 2Q2019, Concho averaged 26 rigs, compared with 33 rigs in 1Q2019. Today the company is down to 18 rigs, including 11 in the Delaware sub-basin and seven in the twin Midland. It also has seven completion crews.

The change in strategy followed solid results for 2Q2019, with average oil output of 206,000 b/d and gas production averaging 737 MMcf/d.

In the Delaware, Concho completed the 23-well Dominator project, a well-spacing test targeting multiple landings within the Upper Wolfcamp. The average lateral length for the project was 4,400 feet, and all of the wells were put on production ahead of schedule.

“While the Dominator project accelerated the company’s understanding across the project lifecycle (logistics, lateral placement, well spacing and facilities design), performance from the project indicates the well spacing was too tight,” management noted. Concho already has incorporated learnings from the project for future projects.

In the Midland, the Marion Benge project ramped up, consisting of 18 wells targeting the Spraberry and Wolfcamp zones with an average lateral length of 9,900 feet. Concho said to date, it has been performing well.

In other news, Concho has formed a joint venture with Solaris Water Midstream LLC to optimize produced water logistics at scale in the northern part of the Delaware. Solaris is to manage produced water gathering, transportation, disposal and recycling for an area covering 1.6 million acres primarily in Eddy County, NM. Concho in turn would contribute 13 saltwater disposal wells and 40 miles of large-diameter gathering pipelines in exchange for cash and an equity ownership in parent Solaris Midstream Holdings LLC.

The Solaris Pecos Star System now includes more than 300 miles of large-diameter gathering pipelines, more than 500,000 barrels/day of disposal capacity, storage and recycling facilities and water supply pipelines that serve nearly 20 oil and gas operators. Solaris plans to deliver to Concho blended reuse source water, enabling a significant increase in the use of recycled water in the operations.

Concho reported a quarterly net loss of $97 million (minus 48 cents/share), versus year-ago profits of $137 million (92 cents). A one-time impairment of $868 million was made in 2Q2019 to the carrying value of the New Mexico Shelf assets.

Cash flow from operating activities was $779 million for the quarter, including $111 million in working capital changes. Operating cash flow before working capital changes was $668 million.