Concho exiting 2017 with optimism, eye on new shale model

By Luke Geiver | November 06, 2017

Concho Resources was the latest exploration and production firm to highlight a new trend in the unconventional oil and gas world. During the E&P’s third quarter investor update, the executive team explained that their business is entering a new phase. After executing the resource capture phase followed by a period of delineating different oil producing zones in the Delaware Basin, many E&Ps—Concho included—are now working to fully develop their acreage and their value to shareholders.

Tim Leach, CEO of Concho, said that there has been a lot of conversation about what the optimal E&P business should look like in the future. The business model for E&Ps is evolving. With decades of development potential in place for many E&Ps, the business model moving forward could be focused more on maximizing shareholder value as opposed to resource capture. Concho believes it is well situated for the new model. According to Leach, the company has the greatest asset base it has ever had.

Starting in Q3 this year, Concho has commenced plans to shift to large scale development across its Delaware Basin acreage. Through its Windward project, the company will be completing 8 two mile lateral wells and in the Avalon area, it will be completing 7 wells. “The focus is moving to longer dated production on our projects,” Leach said.

In the southern Delaware Basin, Concho recently completed a delineation well that has proven to the company that it can add more wells in another Wolfcamp formation. And, in its Midland Basin acreage, Concho recently ran fiber optics in three wells situated on a multiwell pad. Results and information gained from the optics is now being gathered and could be used for future development in the region.

According to Leach and Jack Harper, president of Concho, the outlook for full year 2017 continues to look better than initially thought. The company is actually increasing its growth outlook for the year and expects oil production growth for the year to exceed 27 percent compared to the previous year. For 2018, the outlook for Concho appears to be positive. Large scale projects will capture more of next year’s activities, Leach said, noting that roughly two-thirds of all work next year will be put towards its large scale work. To start the year, Concho will be running 8 frack crews.

“The conversation we are having with our shareholders is how to maximize the value,” Harper said. “The business model we are trying to define over the next several years will include some kind of return of capital and generating growth and generating free cash flow.”

According to Harper, full development mode helps to optimize ultimate recovery and the rate of return it sees on investments into wells.

As for oil prices, the Concho team expects prices to be volatile and because of that, the team is not planning its spend rate at the very latest oil price.