Operations | Permian Basin

The Permian Basin is one of the most prolific producing oil and gas regions in the United States. It underlies an area of Southeastern New Mexico and West Texas approximately 250 miles wide and 300 miles long. Commercial accumulations of hydrocarbons occur in multiple stratigraphic horizons, at depths ranging from approximately 1,000 feet to over 25,000 feet. This basin is characterized by long life shallow decline reserves.

Our core operating areas are located in the Permian Basin region of Southeastern New Mexico and West Texas, the largest onshore oil and gas basin in the United States. We refer to our core operating areas as the Delaware Basin, the New Mexico Shelf and the Texas Permian.

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In 2013, we drilled or participated in 633 wells (465 operated). At December 31, 2013, Concho had identified approximately 22,000 drilling opportunities, with proved reserves associated with approximately 2,000 of such opportunities. Concho's total proved oil and natural gas reserves at December 31, 2013 were 502.9 million barrels of oil equivalent (“MMBoe”), a 13% increase over year-end 2012 proved reserves. Production for 2013 totaled 33.6 MMBoe, a 20% increase over production from continuing operations in 2012.

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The New Mexico Shelf represents our most significant concentration of assets. At year-end 2013, our estimated proved reserves of 225.5 million barrels of oil equivalent (“MMBoe”) in this area accounted for 45% of our total net proved reserves.

The Delaware Basin represents our most significant area of capital investment and proved reserves growth for Concho. At December 31, 2013, proved reserves attributable to the Company’s Delaware Basin assets totaled approximately 138.1 million barrels of oil equivalent (“MMBoe”).

At December 31, 2013, our estimated proved reserves of 139.2 million barrels of oil equivalent (“MMBoe”) in this area accounted for 28% of our total proved reserves.

 
 
 
 
 
 
  • Core Properties
  • New Mexico Shelf
  • Delaware Basin
  • Texas Permian
 

The New Mexico Shelf represents our most significant concentration of assets. At year-end 2013, our estimated proved reserves of 225.5 million barrels of oil equivalent (“MMBoe”) in this area accounted for 45% of our total net proved reserves.
Our activities in the New Mexico Shelf are primarily focused in the Yeso play where we have been an active driller since 2006. The Yeso assets generally produce from the Blinebry and the Paddock formations, with producing depths ranging from approximately 4,000 feet to 7,500 feet. We’ve drilled over 1,500 successful vertical wells and over 100 successful horizontal wells in the Yeso formation.
 

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The theme here during 2013 was takeaway and processing bottlenecks. A year later and those issues have improved significantly. While we are currently running just 2 horizontal rigs, this is an asset that still has room to run at attractive, low-risk economics. As we continue to see improved infrastructure support in the Shelf, we plan to allocate more capital here in the latter part of the year.

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New Mexico Shelf
 

The Delaware Basin represents our most significant area of capital investment and proved reserves growth for Concho. At December 31, 2013, proved reserves attributable to the Company’s Delaware Basin assets totaled approximately 138.1 million barrels of oil equivalent (“MMBoe”), accounting for 27% of our total proved reserves.
At December 31, 2013, we had identified approximately 10,600 drilling locations on our Delaware Basin assets, with proved undeveloped reserves attributable to 400 of such locations. These locations include approximately 6,000 targeting the Bone Spring sands, approximately 1,500 targeting the Avalon shale, approximately 2,000 targeting the Wolfcamp, approximately 850 targeting the Brushy Canyon, and the remaining targeting other objectives.

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The Delaware Basin has advanced from an exploration play in 2010 to an asset that accounted for 40% of our total production in 2013. During 2013, we deployed $1 billion to the Delaware Basin, representing 63% of total capital spent. In order to continue delineating our acreage position and developing our 10,600 high rate-of-return drilling opportunities, we plan to spend approximately 70% of our 2014 drilling and completion budget of $2.3 billion in the Delaware Basin, drilling over 300 gross horizontal wells and targeting six unique zones.

We have continued to improve our results in the southern Delaware Basin, increasing our horizontal rig count to six at year-end 2013. As a result of this success, we identified more than 800 horizontal Wolfcamp and Bone Spring drilling locations. In 2014, we plan to deploy nearly 30% of our $1.6 billion Delaware Basin drilling and completion budget in the southern Delaware Basin by drilling approximately 50 gross horizontal wells.

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Delaware Basin
 

At December 31, 2013, our estimated proved reserves of 139.2 million barrels of oil equivalent (“MMBoe”) in this area accounted for 28% of our total proved reserves.
Currently, our primary objectives in the Texas Permian area are the vertical Wolfberry and the horizontal Wolfcamp in the Midland Basin. “Wolfberry” is the term applied to the combined Spraberry and Wolfcamp target interval which is typically encountered at depths of 7,000 to 10,500 feet.
 

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During 2013, we advanced our understanding of the horizontal Wolfcamp by drilling approximately 20 horizontal wells. Our confidence in these horizontal results led us to add 2,500 horizontal Spraberry and Wolfcamp drilling opportunities at the end of the year. While we will continue our legacy vertical Wolfberry program, we firmly believe that horizontal development is more capital-efficient and provides greater returns. In 2014, we will devote more than 85% of our drilling capital in the Texas Permian to horizontal wells and plan to drill approximately 195 gross wells, of which approximately 75 will be horizontal.

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Texas Permian
 
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Summary of Core Operating Areas

Summary of Core Operating Areas and Other Plays

The following is a summary of information regarding our core operating areas and other plays that are further described below:

December 31, 2013

Core Operating Areas: Total Proved
Reserves (MBoe)
PV-10
($ in millions)
% Oil % Proved
Developed
Gross Identified
Drilling Locations
Total Gross
Acreage
Total Net
Acreage
2013 Average Daily
Production (Boe per Day)
New Mexico Shelf: 225,534 4,210.5 63% 71% 2,700 209,437 88,774 33,785
Delaware Basin: 138,079 2,679.0 57% 46% 10,600 514,056 342,572 36,618
Texas Permian: 139,199 2,139.1 62% 57% 8,500 418,382 147,180 21,737
Other: 109 0.9 7% 100% - 35,261 25,846 10
Total: 502,921 9,029.5(a) 61% 60% 21,800(b) 1,177,136 604,372 92,150

(a) Our Standardized Measure at December 31, 2013 was $6.2 billion. The present value of estimated future net revenues discounted at an annual rate of 10 percent ("PV-10") is not a GAAP financial measure and is derived from the Standardized Measure, which is the most directly comparable GAAP financial measure. PV-10 is a computation of the Standardized Measure on a pre-tax basis. PV-10 is equal to the Standardized Measure at the applicable date, before deducting future income taxes, discounted at 10 percent. We believe that the presentation of the PV-10 is relevant and useful to investors because it presents the discounted future net cash flows attributable to our estimated proved reserves prior to taking into account future corporate income taxes, and it is a useful measure for evaluating the relative monetary significance of our oil and natural gas assets. Further, investors may utilize the measure as a basis for comparison of the relative size and value of our reserves to other companies. We use this measure when assessing the potential return on investment related to our oil and natural gas assets. PV-10, however, is not a substitute for the Standardized Measure. Our PV-10 measure and the Standardized Measure do not purport to present the fair value of our oil and natural gas reserves. See "Item 1. Business —Non-GAAP Financial Measures and Reconciliations."

(b) Of the 21,800 gross identified drilling locations, approximately 2,000 locations were associated with proved reserves. In addition, a portion of the increase in the number of gross identified drilling locations as compared to December 31, 2012 is attributable to the application of our identification methodology to a greater portion of our acreage, to a greater number of targeted zones and assuming tighter well spacing.

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