Concho Resources Cut Capital Spending Another 44% In Second Quarter

Concho Resources
CXO
cut its capital spending by 44% compared to the first quarter of 2020, the company said this afternoon as it touted rapid cost reductions in response to low oil prices.

One of America’s top U.S. shale producers, Concho said that it produced 319,000 barrels of oil per day or the equivalent — a measure that tallies both oil and gas output as barrels of oil — during the second quarter, which covers the three months to June 30. It produced 200,000 barrels per day (b/d) of crude oil in that period.

Despite the dramatic cost reductions, those production levels were not far below levels from the first quarter, when it produced 326,000 b/d of oil or the equivalent. A steeper drop-off in production is likely to show up next quarter, since lower capital spending on production doesn’t immediately translate into lower volumes from existing oil and gas wells.

Cost-cutting helped Concho to generate $238 million in free cash flow, although it still reported a net loss of $435 million. Revenue from sales of oil — which account for the vast majority of its total revenue — was down dramatically from a year ago, at $474 million compared with $1.1 billion in the second quarter of 2019.

Like other shale oil producers in the U.S., Concho Resources has been eager to show off its ability to quickly scale back operations and preserve cash. Other, smaller shale oil producers have faced bankruptcy and a number have gone under. Once the darling of investors on Wall Street, shale oil and gas companies loaded up on debt before the COVID-19 pandemic sapped oil demand early this year, precipitating a dramatic collapse in their share prices.

Concho’s stock price was down more than 50% on the year in mid-March, similar to other top producers. Shares have recovered steadily to 40% down thanks to rebounding oil prices, but now the oil price rally has stalled with WTI crude struggling to push past roughly $40 per barrel.

Concho will host an earnings call tomorrow morning.