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 New Mexico Shelf, the Delaware Basin and the Texas Permian.

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In 2011, we drilled or participated in 810 wells (708 operated). At December 31, 2011, Concho had identified 8,905 drilling opportunities, with proved reserves associated with 2,253 of such opportunities. Concho's total proved oil and natural gas reserves at December 31, 2011 were 386.5 million barrels of oil equivalent (“MMBoe”), a 19% increase over year end 2010 proved reserves. Production for 2011 totaled 23.6 MMBoe, an increase of 51% as compared to 15.6 MMBoe produced in 2010.

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This area represents our most significant concentration of assets and year end 2011 estimated proved reserves of 210.3 million barrels of oil equivalent (“MMBoe”) in this area accounted for 54% of our total net proved reserves.

This area represents our newest and fastest growing core area. At December 31, 2011, proved reserves attributable to the Company’s Delaware Basin assets totaled approximately 49.7 MMBoe, accounting for 13% of our total proved reserves.

At December 31, 2011, our estimated proved reserves of 126.5 million barrels of oil equivalent (“MMBoe”) in this area accounted for 33% of our total proved reserves.

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

This area represents our most significant concentration of assets and year end 2011 estimated proved reserves of 210.3 million barrels of oil equivalent (“MMBoe”) in this area accounted for 54% of our total net proved reserves.

Our activities in the New Mexico Shelf are primarily focused in the vertical 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. Concho drilled our thousandth well in the Yeso this year. The pace of drilling and our existing infrastructure allow us to think of this area as a manufacturing type operation. We drilled over 400 wells in 2011 alone.

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During 2011, we drilled several horizontal Yeso wells both into the Blinebry and the Paddock and we plan to drill more horizontal wells in 2012. Additionally, we continue to stretch the boundaries of what we traditionally think of as the Yeso trend, both to the North and to the West.

In addition to drilling in the Yeso play, we also had a rig running in the Lower Abo play for most of 2011. This play, which sits directly north of our Yeso acreage, is where Concho began drilling horizontal wells in 2008.

The Lower Abo is a horizontal oil play just north and northeast of the Yeso assets in Lea, Eddy and Chaves Counties, New Mexico. The Lower Abo play is found at vertical depths ranging from 6,500 feet to 10,000 feet and is being developed utilizing horizontal drilling techniques and advanced fracture and stimulation technology.

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New Mexico Shelf
 

This area represents our newest and fastest growing core area. At December 31, 2011, proved reserves attributable to the Company’s Delaware Basin assets totaled approximately 49.7 MMBoe, accounting for 13% of our total proved reserves.

At December 31, 2011, on its Delaware Basin assets, the Company had identified 1,870 drilling locations, with proved undeveloped reserves attributable to 162 of such locations. Of these drilling locations, 1,417 target the horizontal Bone Spring play, which includes the Avalon shale, the Bone Spring sands and the Wolfcamp shale.

The Northern portion of the acreage is currently being drilled horizontally. Concho currently targets several zones: primarily the Avalon Shale, the Bone Spring sands and the Wolfcamp shale.

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We have increased our activity in this area from approximately one-quarter of our budget in 2011 to approximately one-third of our budget in 2012. In 2012, we are taking the excess cash flow created by the New Mexico Shelf and the Texas Permian and redeploying those dollars into the Delaware Basin in order to delineate the play.

In addition to our horizontal program in the Northern Delaware, we are drilling vertical wells in the Southern part of the basin, often referred to as the Wolfbone. In the Southern Delaware, we will drill a horizontal well during 2012 to better understand the horizontal potential of the Southern Delaware Basin.

During 2011, we added approximately significant acres in both the Northern and the Southern parts of the Delaware through a series of acquisitions and leasing efforts. We have now amassed and acreage position in the Delaware Basin of 270,000 net acres.

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Delaware Basin
 

At December 31, 2011, our estimated proved reserves of 126.5 million barrels of oil equivalent (“MMBoe”) in this area accounted for 33% of our total proved reserves.

Currently, the primary objective in the Texas Permian area is the Wolfberry 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. The Wolfberry is comprised of a sequence of basinal, interbedded shales and carbonates. Like the Yeso, we have drilled over a thousand wells in this area and it has similar manufacturing-like characteristics. These wells are fractured over 2,500 gross feet of pay from the top of the Spraberry through the Wolfcamp and down to the Atoka or Bend in many cases.

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Throughout 2011, we acquired additional acreage in the Wolfberry, which increased our average working interest to approximately 54% in the Wolfberry and added over 750 gross opportunities. Through these acquisitions, we were able to replace all of the locations that we drilled in 2011 with newly acquired locations. We drilled approximately 270 Wolfberry wells in 2011 and began to recognize 20 acre potential on our acreage, which more than doubled our inventory in the Wolfberry.

Additionally, we began drilling our first horizontal Cline well in the Texas Permian in the fourth quarter of 2011.

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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, 2011

Core Operating Areas: Total Proved
Reserves (MBoe)
PV-10
($ in millions)
% Oil % Proved
Developed
Gross Identified
Drilling Locations
Total Gross
Acreage
Total Net
Acreage
2011 Average Daily
Production (Boe per Day)
New Mexico Shelf: 210,268 5,083.3 65% 70% 2,715 240,404 124,278 35,666
Delaware Basin: 49,749 904.9 38% 54% 1,870 410,877 273,225 12,574
Texas Permian: 126,492 2,411.4 66% 49% 4,320 279,427 110,706 16,185
Other: 12 0.2 8% 100% - 38,318 25,300 353
Total: 386,521 8,399.8(a) 62% 61% 8,905(b) 969,026 533,509 64,778(c)

(a) Our Standardized Measure at December 31, 2011 was $5.7 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 8,905 gross identified drilling locations, 2,253 locations were associated with proved reserves.

(c) Includes production of 123 MBoe (an average of 1,369 Boe per day for the first quarter of 2011) for the Bakken assets divested in March 2011.

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