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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the year ended December 31,
    2009oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file
    number: 1-33615
  Concho Resources Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

76-0818600(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)550 West Texas Avenue, Suite 100
    Midland, Texas

79701(Address of principal executive
    offices)

(Zip code)   (432) 683-7443
 (Registrants telephone number, including area code)
  Securities Registered Pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange On Which RegisteredCommon Stock, $0.001 par value

New York Stock Exchange   Securities Registered Pursuant to Section 12(g) of the
    Act:
  þ o
  o þ
  þ o
  o o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated
    filer oNon-accelerated
    filer o (Do
    not check if a smaller reporting company)

Smaller reporting
    company o
   Rule 12b-2 o þ
  Aggregate market value of the voting and non-voting common
    equity held by non-affiliates computed by reference to
    the price at which the common equity was last sold, or the
    average bid and asked price of such common equity, as of the
    last
    business day of the registrants most recently completed
    second fiscal quarter:

$2,266,962,068Number of shares of registrants common stock outstanding
    as of February 24, 2010:

91,294,108   Documents Incorporated by Reference:




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Table of
    Contents
  CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
    STATEMENTS

1PART I

2Item 1. Business

2General

2Wolfberry Acquisitions

2Henry Entities Acquisition

2Business and Properties

2Summary of Core Operating Areas and Emerging
    Plays

3Drilling Activities

5Our Production, Prices and Expenses

6Productive Wells

7Marketing Arrangements

7Our Principal Customers

8Competition

8Applicable Laws and Regulations

9Our Employees

14Available Information

14Non-GAAP Financial Measures and
    Reconciliations

14Item 1A. Risk Factors

17Risks Related to Our Business

17Risks Relating to Our Common Stock

32Item 1B. Unresolved Staff Comments

32Item 2. Properties

32Our Oil and Natural Gas Reserves

32Developed and Undeveloped Acreage

37Title to Our Properties

38Item 3. Legal Proceedings

38Item 4. Submission of Matters to a Vote
    of Shareholders

38PART II

39Item 5. Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities

39Market Information

39Dividend Policy

39Repurchase of Equity Securities

39Item 6. Selected Financial Data

40Selected Historical Financial Information

40Item 7. Managements Discussion and
    Analysis of Financial Condition and Results of Operations

43Overview

43Commodity Prices

43Recent Events

44Henry Entities Acquisition

45Derivative Financial Instruments

45 i




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Table of
    Contents  continued
  Results of Operations

47Year Ended December 31, 2009 Compared to
    Year Ended December 31, 2008

49Year Ended December 31, 2008 Compared to
    Year Ended December 31, 2007

53Capital Commitments, Capital Resources and
    Liquidity

58Critical Accounting Policies and Practices

62Recent Accounting Pronouncements

64Item 7A. Quantitative and Qualitative
    Disclosure About Market Risk

66Credit Risk

67Commodity Price Risk

67Interest Rate Risk

67Item 8. Financial Statements and
    Supplementary Data

68Item 9. Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

69Item 9A. Controls and Procedures

69Evaluation of Disclosure Controls and
    Procedures

69Changes in Internal Control over Financial
    Reporting

69Item 9B. Other Information

72PART III

72Item 10. Directors, Executive Officers
    and Corporate Governance

72Item 11. Executive Compensation

72Item 12. Security Ownership of Certain
    Beneficial Owners and Management and Related Stockholder
    Matters

72Equity Compensation Plans

72Item 13. Certain Relationships and
    Related Transactions, and Director Independence

72Item 14. Principal Accounting Fees and
    Services

72PART IV

73Item 15. Exhibits, Financial Statement
    Schedules, and Reports on
    Form 8-K

73GLOSSARY OF TERMS

77SIGNATURES

82INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1EX-10.18EX-12.1EX-21.1EX-23.1EX-23.2EX-23.3EX-23.4EX-23.5EX-31.1EX-31.2EX-32.1EX-32.2   ii




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CAUTIONARY
    STATEMENT REGARDING FORWARD-LOOKING STATEMENTS    
    sustained or further declines in the prices we receive for our
    oil and natural gas;
    uncertainties about the estimated quantities of oil and natural
    gas reserves, including uncertainties about the effects of the
    SECs new rules governing oil and natural gas reserve
    reporting;
    drilling and operating risks;
    the adequacy of our capital resources and liquidity including,
    but not limited to, access to additional borrowing capacity
    under our credit facility;
    the effects of government regulation, permitting and other legal
    requirements;
    difficult and adverse conditions in the domestic and global
    capital and credit markets;
    risks related to the concentration of our operations in the
    Permian Basin of Southeast New Mexico and West Texas;
    potential financial losses or earnings reductions from our
    commodity price risk management program;
    shortages of oilfield equipment, services and qualified
    personnel and increased costs for such equipment, services and
    personnel;
    risks and liabilities associated with acquired properties or
    businesses;
    uncertainties about our ability to successfully execute our
    business and financial plans and strategies;
    uncertainties about our ability to replace reserves and
    economically develop our current reserves;
    general economic and business conditions, either internationally
    or domestically or in the jurisdictions in which we operate;
    competition in the oil and natural gas industry;
    uncertainty concerning our assumed or possible future results of
    operations; and
    our existing indebtedness.   1




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PART I  Item 1.
    Business General     Wolfberry
    Acquisitions   Henry
    Entities Acquisition   Business
    and Properties   2




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and/or
    Years Ended December 31,2009

2008Gross wells


361.0



243.0Net wells


230.3



157.2Percent of gross wells:Producers


81.7
%


86.8
%Unsuccessful


0.6
%


0.4
%Awaiting completion at year-end


17.7
%


12.8
%100.0
%


100.0
%    Summary
    of Core Operating Areas and Emerging Plays    Year EndedDecember 31, 2009


December 31,Total











Gross








2009 AverageProved











Identified


Total


Total


Net DailyReserves








% Proved


Drilling


Gross


Net


ProductionAreas

(Mboe)


PV-10


% Oil


Developed


Locations


Acreage


Acreage


(Boe per Day)($ in millions)Core Operating Areas:New Mexico Permian


128,605


$
1,824.3



65.2
%


52.1
%


1,592



150,214



69,931



19,586Texas Permian


77,173



856.9



70.5
%


44.0
%


1,795



287,961



91,135



8,113Emerging Plays:Lower Abo


2,707



51.3



63.3
%


54.6
%


152



59,179



48,401



1,581Bakken/Three Forks


2,642



30.4



77.6
%


35.2
%


146



42,210



11,193



511Other


376



1.9



3.0
%


83.8
%


10



140,238



56,287



155Total


211,503
(a)

$
2,764.8
(b)


67.1
%


49.0
%


3,695
(c)


679,802



276,947



29,946     (a)
    
    Includes additions of 13.6 MMBoe resulting from the
    adoption of the new SEC rules related to disclosures of oil and
    natural gas reserves that are effective for fiscal years ending
    on or after December 31, 2009. For more information on the
    comparability of our reserves as a result of the new SEC rules,
    see Item 1A. Risk Factors and Item 2.
    Properties.(b)
    
    Our Standardized Measure at December 31, 2009 was
    $1,922.0 million.
    PV-10 is a
    Non-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 3




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discounted future net cash flows attributable to our estimated
    net 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 properties. 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 properties.
    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.(c)
    
    Of the 3,695 gross identified drilling locations, 1,726
    locations were associated with proved reserves.  Core
    operating areas
  New Mexico Permian. PV-10.
        Texas Permian. PV-10.
        Emerging
    plays
   4




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Lower Abo horizontal play.
    Bakken/Three Forks play.
   Drilling
    Activities    Years Ended December 31,2009

2008

2007Gross

Net

Gross

Net

Gross

NetDevelopment wellsProductive


211.0



139.2



118.0



76.8



60.0



38.5Dry






















Exploratory wellsProductive


125.0



83.3



93.0



63.2



55.0



48.0Dry


3.0



0.6



1.0



1.0



2.0



1.2Total wellsProductive


336.0



222.5



211.0



140.0



115.0



86.5Dry


3.0



0.6



1.0



1.0



2.0



1.2Total


339.0



223.1



212.0



141.0



117.0



87.7     Drilling In-progress

Pending CompletionGross

Net

Gross

NetDevelopment wells


11.0



5.3



35.0



19.8Exploratory wells


7.0



2.5



11.0



2.9Total


18.0



7.8



46.0



22.7  5




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Our
    Production, Prices and Expenses    Years Ended December 31,2009

2008

2007Production and operating data:Net production volumes:Oil (MBbl)


7,336



4,586



3,014Natural gas (MMcf)


21,568



14,968



12,064Total (MBoe)


10,931



7,081



5,025Average daily production volumes:Oil (Bbl)


20,099



12,530



8,258Natural gas (Mcf)


59,090



40,896



33,052Total (Boe)


29,947



19,346



13,766Average prices:Oil, without derivatives (Bbl)

$
57.98


$
91.92


$
68.58Oil, with derivatives (Bbl)(a)

$
68.18


$
83.55


$
64.90Natural gas, without derivatives (Mcf)

$
5.52


$
9.59


$
8.08Natural gas, with derivatives (Mcf)(a)

$
6.03


$
9.64


$
8.33Total, without derivatives (Boe)

$
49.81


$
79.80


$
60.52Total, with derivatives (Boe)(a)

$
57.65


$
74.49


$
58.93Operating costs and expenses per Boe:Lease operating expenses and workover costs

$
5.82


$
6.31


$
5.56Oil and natural gas taxes

$
4.07


$
6.57


$
5.24General and administrative

$
4.78


$
5.76


$
5.01Depreciation, depletion and amortization

$
18.86


$
17.50


$
15.28     (a)
    
    Includes the effect of (i) commodity derivatives designated
    as hedges and reported in oil and natural gas sales and
    (ii) includes the cash payments/receipts from commodity
    derivatives not designated as hedges and reported in operating
    costs and expenses. The following table reflects the amounts of
    cash payments/receipts from commodity derivatives not designated
    as hedges that were included in computing average prices with 6




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derivatives and reconciles to the amount in gain (loss) on
    derivatives not designated as hedges as reported in the
    statements of operations:  Years Ended December 31,2009


2008


2007(In thousands)Oil and natural gas sales:Cash payments on oil derivatives

$



$
(30,591
)

$
(11,091
)Cash receipts from natural gas derivatives










188Designated natural gas cash flow hedges reclassified from
    accumulated other comprehensive income






(696
)


1,103Total effect on oil and natural gas sales

$



$
(31,287
)

$
(9,800
)Gain (loss) on derivatives not designated as hedges:Cash (payments on) receipts from oil derivatives

$
74,796


$
(7,780
)

$
Cash receipts from natural gas derivatives


10,955



1,426



1,815Cash payments on interest rate derivatives


(3,335
)






Unrealized
    mark-to-market
    gain (loss) on commodity and interest rate derivatives


(239,273
)


256,224



(22,089
)Gain (loss) on derivatives not designated as hedges

$
(156,857
)

$
249,870


$
(20,274
)    Productive
    Wells    Gross Productive Wells

Net Productive WellsNatural





NaturalOil

Gas

Total

Oil

Gas

TotalCore Operating Areas:New Mexico Permian


1,744



191



1,935



1,171.6



55.4



1,227.0Texas Permian


1,740



69



1,809



463.7



10.8



474.5Emerging Plays:Lower Abo


20







20



9.2







9.2Bakken/Three Forks


40







40



5.2







5.2Other


25



131



156



1.2



5.9



7.1Total


3,569



391



3,960



1,650.9



72.1



1,723.0  Marketing
    Arrangements  General.
 7




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Oil.
  Natural Gas.
     Our
    Principal Customers     Competition     8




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Applicable
    Laws and Regulations  Regulation
    of the Oil and Natural Gas Industry
  Regulation of transportation of
    oil.
      Regulation of transportation and sale of natural
    gas.
   9




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cost-of-service
 10




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Regulation of production.
  Environmental,
    Health and Safety Matters
  General.
  
    require the acquisition of various permits before drilling
    commences;
    restrict the types, quantities and concentration of various
    substances that can be released into the environment in
    connection with oil and natural gas drilling and production, and
    saltwater disposal activities;
    limit or prohibit drilling activities on certain lands lying
    within wilderness, wetlands and other protected areas; and
    require remedial measures to mitigate pollution from former and
    ongoing operations, such as requirements to close pits and plug
    abandoned wells.      Waste handling.
 11




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Comprehensive Environmental Response, Compensation and
    Liability Act.
    Water discharges.
  Air emissions.
     12




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Hydraulic fracturing.
  Endangered species.
  National Environmental Policy Act.
  OSHA and other laws and regulation. right-to-know and/or
 13




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Our
    Employees   Available
    Information  1-800-SEC-0330. http://www.sec.gov.
  Form 10-Q, Form 8-K
 Non-GAAP Financial
    Measures and Reconciliations  PV-10
  PV-10 PV-10 PV-10 PV-10 PV-10, PV-10
 14




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PV-10
  Years Ended December 31,2009


2008


2007(In millions)PV-10

$
2,764.8


$
1,663.2


$
2,138.5Present value of future income taxes discounted at 10%


(842.8
)


(464.2
)


(706.7
)Standardized measure of discounted future net cash flows

$
1,922.0


$
1,199.0


$
1,431.8   EBITDAX
     15




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Chase GroupPropertiesConcho Resources Inc.


Year EndedYears Ended December 31,


December 31,(a)2009


2008


2007


2006


2005


2005(In thousands)Net income (loss)

$
(9,802
)

$
278,702


$
25,360


$
19,668


$
1,954


$
74,351Exploration and abandonments


10,660



38,468



29,098



5,612



2,666



Depreciation, depletion and amortization


206,143



123,912



76,779



60,722



11,485



18,646Accretion of discount on asset retirement obligations


1,058



889



444



287



89



446Impairments of long-lived assets


12,197



18,417



7,267



9,891



2,295



194Non-cash stock-based compensation


9,040



5,223



3,841



9,144



3,252



Bad debt expense


(1,035
)


2,905















Ineffective portion of cash flow hedges






(1,336
)


821



(1,193
)


1,148



Unrealized (gain) loss on derivatives not designated as hedges


239,273



(256,224
)


22,089







1,966



1,062Interest expense


28,292



29,039



36,042



30,567



3,096



Income tax expense (benefit)


(20,732
)


162,085



16,019



14,379



2,039



EBITDAX

$
475,094


$
402,080


$
217,760


$
149,077


$
29,990


$
94,699     (a)
    
    The acquisition of the Chase Group Properties was substantially
    consummated on February 27, 2006, as a result of the
    combination of assets owned by Chase Oil and certain of its
    affiliates and Concho Equity Holdings Corp., see
    Item 1. Business  General. 16




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Item 1A.
    Risk
    Factors  You should consider carefully the following risk factors
    together with all of the other information included in this
    report and other reports filed with the SEC, before investing in
    our shares. If any of the following risks were actually to
    occur, our business, financial condition or results of
    operations could be materially adversely affected. In that case,
    the trading price of our shares could decline and you could lose
    all or part of your investment.
 Risks
    Related to Our Business  Oil
    and natural gas prices are volatile. A decline in oil and
    natural gas prices could adversely affect our financial
    position, financial results, cash flow, access to capital and
    ability to grow.
    
    the level of consumer demand for crude oil and natural gas;
    the domestic and foreign supply of crude oil and natural gas;
    commodity processing, gathering and transportation availability,
    and the availability of refining capacity;
    the price and level of imports of foreign crude oil and natural
    gas;
    the ability of the members of the Organization of Petroleum
    Exporting Countries to agree to and maintain crude oil price and
    production controls;
    domestic and foreign governmental regulations and taxes;
    the price and availability of alternative fuel sources;
    weather conditions;
    political conditions or hostilities in oil and natural gas
    producing regions, including the Middle East, Africa and South
    America;
    technological advances affecting energy consumption;
    variations between product prices at sales points and applicable
    index prices; and
    worldwide economic conditions.     17




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Our
    estimates of proved reserves have been prepared under new SEC
    rules which went into effect for fiscal years ending on or after
    December 31, 2009, which may make comparisons to prior
    periods difficult and could limit our ability to book additional
    proved undeveloped reserves in the future.
  12-month first-day-of-the-month last-day-of-the-year
    PV-10
  Drilling
    for and producing crude oil and natural gas are high-risk
    activities with many uncertainties that could cause our expenses
    to increase or our cash flows and production volumes to
    decrease.
    
    delays imposed by or resulting from compliance with regulatory
    and contractual requirements;
    pressure or irregularities in geological formations;
    shortages of or delays in obtaining equipment and qualified
    personnel;
    equipment failures or accidents;
    adverse weather conditions;
    reductions in crude oil and natural gas prices;
    surface access restrictions;
    loss of title or other title related issues; 18




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
    crude oil, natural gas liquids or natural gas gathering,
    transportation and processing availability restrictions or
    limitations; and
    limitations in the market for crude oil and natural gas.  Estimates
    of proved reserves and future net cash flows are not precise.
    The actual quantities of our proved reserves and our future net
    cash flows may prove to be lower than estimated.
    and/or
  
    historical production from the area compared with production
    from other producing areas;
    the quality, quantity and interpretation of available relevant
    data;
    the assumed effects of regulations by governmental agencies;
    the quality, quantity and interpretation of available relevant
    data;
    assumptions concerning future commodity prices; and
    assumptions concerning future operating costs; severance, ad
    valorem and excise taxes; development costs; and workover and
    remedial costs.    
    the quantities of crude oil and natural gas that are ultimately
    recovered;
    the production and operating costs incurred;
    the amount and timing of future development expenditures; and
    future commodity prices.    PV-10, PV-10
 19




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PV-10 PV-10
  Our
    business requires substantial capital expenditures. We may be
    unable to obtain needed capital or financing on satisfactory
    terms or at all, which could lead to a decline in our crude oil
    and natural gas reserves.
        
    our proved reserves;
    the level of crude oil and natural gas we are able to produce
    from existing wells;
    the prices at which our crude oil and natural gas are sold;
    global credit and securities markets;
    the ability and willingness of lenders and investors to provide
    capital and the cost of the capital; and
    our ability to acquire, locate and produce new reserves.   20




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We are
    subject to complex federal, state, local and other laws and
    regulations that could adversely affect the cost, timing, manner
    or feasibility of conducting our operations.
      Our
    operations expose us to significant costs and liabilities with
    respect to environmental and operational safety
    matters.
      We may
    not be able to obtain funding at all, or obtain funding on
    acceptable terms, to meet our future capital needs because of
    uncertainty in the credit and capital markets.
     21




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
    our lending counterparties may be unwilling or unable to meet
    their funding obligations;
    the borrowing base under our credit facility is redetermined at
    least twice a year and may decrease due to a decrease in crude
    oil or natural gas prices, operating difficulties, declines in
    reserves, lending requirements or regulations, or for other
    reasons; or
    if any lender is unable or unwilling to fund their respective
    portion of any advance under our credit facility, then the other
    lenders thereunder are not required to provide additional
    funding to make up the portion of the advance that the
    defaulting lender refused to fund.    Our
    lenders can limit our borrowing capabilities, which may
    materially impact our operations.
  2 3
  Our
    indebtedness could restrict our operations and make us more
    vulnerable to adverse economic conditions.
      
    impair our ability to make investments and obtain additional
    financing for working capital, capital expenditures,
    acquisitions or other general corporate purposes; 22




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
    limit our ability to use operating cash flow in other areas of
    our business because we must dedicate a substantial portion of
    these funds to make principal and interest payments on our
    indebtedness;
    limit our ability to borrow funds that may be necessary to
    operate or expand our business;
    put us at a competitive disadvantage to competitors that have
    less debt;
    increase our vulnerability to interest rate increases; and
    hinder our ability to adjust to rapidly changing economic and
    industry conditions.    Our producing properties are located primarily in the
    Permian Basin of Southeast New Mexico and West Texas, making us
    vulnerable to risks associated with operating in one major
    geographic area. In addition, we have a large amount of proved
    reserves attributable to a small number of producing horizons
    within this area.
      Future
    price declines could result in a reduction in the carrying value
    of our proved oil and natural gas properties, which could
    adversely affect our results of operations.
    We
    periodically evaluate our unproved oil and natural gas
    properties for impairment, and could be required to recognize
    noncash charges to earnings of future periods.
  project-by-project
 23




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Part
    of our strategy involves exploratory drilling, including
    drilling in new or emerging plays. As a result, our drilling
    results in these areas are uncertain, and the value of our
    undeveloped acreage will decline if drilling results are
    unsuccessful.
    Our
    commodity price risk management program may cause us to forego
    additional future profits or result in our making cash payments
    to our counterparties.
    
    the counterparty to a commodity price risk management contract
    may default on its contractual obligations to us;
    there may be a change in the expected differential between the
    underlying price in a commodity price risk management agreement
    and actual prices received; or
    market prices may exceed the prices which we are contracted to
    receive, resulting in our need to make significant cash payments
    to our counterparties.    We
    have entered into interest rate derivative instruments that may
    subject us to loss of income.
      
    the counterparty may default on its contractual obligations to
    us;
    there may be issues with regard to the legal enforceability of
    such instruments;
    the early repayment of one of our interest rate derivative
    instruments could lead to prepayment penalties; or
    unanticipated and significant changes in interest rates may
    cause a significant loss of basis in the instrument and a change
    in current period expense. 24




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##### Table of Contents



If we
    enter into derivative instruments that require us to post cash
    collateral, our cash otherwise available for use in our
    operations would be reduced, which could limit our ability to
    make future capital expenditures.
    Nonperformance
    by a counterparty to our derivative instruments or commodity
    purchase agreements could adversely affect our financial
    condition and results of operations.
      Our
    identified inventory of drilling locations and recompletion
    opportunities are scheduled out over several years, making them
    susceptible to uncertainties that could materially alter the
    occurrence or timing of their drilling.
    Approximately
    51 percent of our total estimated net proved reserves at
    December 31, 2009, were undeveloped, and those reserves may
    not ultimately be developed.
   25




---



##### Table of Contents



Unless
    we replace our crude oil and natural gas reserves, our reserves
    and production will decline, which would adversely affect our
    cash flow, our ability to raise capital and the value of our
    common stock.
    We may
    be unable to make attractive acquisitions or successfully
    integrate acquired companies, and any inability to do so may
    disrupt our business and hinder our ability to
    grow.
        Our
    acquisitions may prove to be worth less than what we paid
    because of uncertainties in evaluating recoverable reserves and
    could expose us to potentially significant
    liabilities.
     26




---



##### Table of Contents



Competition
    in the oil and natural gas industry is intense, making it more
    difficult for us to acquire properties, market oil and natural
    gas and secure trained personnel.
    Shortages
    of oilfield equipment, services and qualified personnel could
    delay our drilling program and increase the prices we pay to
    obtain such equipment, services and personnel.
    Our
    exploration and development drilling may not result in
    commercially productive reserves.
   27




---



##### Table of Contents




    unexpected drilling conditions;
    title problems;
    pressure or lost circulation in formations;
    equipment failures or accidents;
    adverse weather conditions;
    compliance with environmental and other governmental or
    contractual requirements; and
    increases in the cost of, or shortages or delays in the
    availability of, electricity, supplies, materials, drilling or
    workover rigs, equipment and services.  We may
    incur substantial losses and be subject to substantial liability
    claims as a result of our crude oil and natural gas operations.
    In addition, we may not be insured for, or our insurance may be
    inadequate to protect us against, these risks.
    
    environmental hazards, such as uncontrollable flows of crude
    oil, natural gas, brine, well fluids, toxic gas or other
    pollution into the environment, including groundwater
    contamination;
    abnormally pressured or structured formations;
    mechanical difficulties, such as stuck oilfield drilling and
    service tools and casing collapse;
    fires, explosions and ruptures of pipelines;
    personal injuries and death; and
    natural disasters.    
    injury or loss of life;
    damage to and destruction of property, natural resources and
    equipment;
    pollution and other environmental damage;
    regulatory investigations and penalties;
    suspension of our operations; and
    repair and remediation costs.   28




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##### Table of Contents



Market
    conditions or operational impediments may hinder our access to
    oil and natural gas markets or delay our
    production.
    Certain
    federal income tax deductions currently available with respect
    to oil and natural gas exploration and development may be
    eliminated as a result of future legislation.
    The
    adoption of climate change legislation by Congress could result
    in increased operating costs and reduced demand for the oil and
    natural gas we produce.
  cap-and-trade
   29




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##### Table of Contents



The
    adoption of derivatives legislation by Congress could have an
    adverse impact on our ability to hedge risks associated with our
    business.
    Federal
    and state legislation and regulatory initiatives relating to
    hydraulic fracturing could result in increased costs and
    additional operating restrictions or delays.
   30




---



##### Table of Contents



The
    loss of our chief executive officer or other key personnel could
    negatively impact our ability to execute our business
    strategy.
    Because
    we do not control the development of certain of the properties
    in which we own interests, but do not operate, we may not be
    able to achieve any production from these properties in a timely
    manner.
    
    the nature and timing of drilling and operational activities;
    the timing and amount of capital expenditures;
    the operators expertise and financial resources;
    the approval of other participants in such properties; and
    the selection and application of suitable technology.    Uncertainties
    associated with enhanced recovery methods may result in us not
    realizing an acceptable return on our investments in such
    projects.
    A
    terrorist attack or armed conflict could harm our business by
    decreasing our revenues and increasing our costs.
   31




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##### Table of Contents



Risks
    Relating to Our Common Stock  Our
    restated certificate of incorporation, bylaws and Delaware law
    contain provisions that could discourage acquisition bids or
    merger proposals, which may adversely affect the market price of
    our common stock.
    
    the organization of our board of directors as a classified
    board, which allows no more than approximately one-third of our
    directors to be elected each year;
    stockholders cannot remove directors from our board of directors
    except for cause and then only by the holders of not less than
    662/3 percent
    of the voting power of all outstanding voting stock;
    the prohibition of stockholder action by written
    consent; and
    limitations on the ability of our stockholders to call special
    meetings and establish advance notice provisions for stockholder
    proposals and nominations for elections to the board of
    directors to be acted upon at meetings of stockholders.  Because
    we have no plans to pay dividends on our common stock, investors
    must look solely to stock appreciation for a return on their
    investment in us.
    The
    availability of shares for sale in the future could reduce the
    market price of our common stock.
      Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties Our Oil
    and Natural Gas Reserves   32




---



##### Table of Contents



PV-10.
  New SEC Reserve Rules. 12-month first-day-of-the-month
  Internal controls.
    Qualifications
    of responsible technical persons.
  E. Joseph Wright has been our Vice President 
    Engineering and Operations
  Gayle Burleson has been our Manager of Corporate Engineering,
 33




---



##### Table of Contents



CGA. No. F-693.
  NSAI. No. F-002699.
  Our oil and natural gas reserves. PV-10 PV-10 12-month first-day-of-the-month 12-month first-day-of-the-month
  NaturalOil (MBbl)


Gas (MMcf)


Total (MBoe)


PV-10(a)(In millions)Core Operating Areas:New Mexico Permian


83,820



268,711



128,605


$
1,824.3Texas Permian


54,425



136,489



77,173



856.9Emerging Plays:Lower Abo


1,713



5,966



2,707



51.3Bakken/Three Forks


2,049



3,557



2,642



30.4Other


11



2,188



376



1.9Total


142,018



416,911



211,503
(b)

$
2,764.8Present value of future income tax discounted at 10%














(842.8
)Standardized Measure













$
1,922.0  34




---



##### Table of Contents



NaturalOil (MBbl)


Gas (MMcf)


Total (MBoe)


Percent of Total


PV-10(a)(In millions)Proved developed producing


56,778



196,457



89,521



42.3
%

$
1,500.2Proved developed non-producing


9,800



26,319



14,186



6.7
%


228.2Proved undeveloped


75,440



194,135



107,796
(b)


51.0
%


1,036.4Total proved


142,018



416,911



211,503



100.0
%

$
2,764.8     (a)
    
    Our Standardized Measure at December 31, 2009 was
    $1,922.0 million.
    PV-10 is a
    Non-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
    net 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 properties. 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 properties.
    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)
    
    Includes additions of 13.6 MMBoe resulting from the
    adoption of the new SEC rules related to disclosures of oil and
    natural gas reserves that are effective for fiscal years ending
    on or after December 31, 2009. For more information on the
    comparability of our reserves as a result of the new SEC rules,
    see Item 1A. Risk Factors.  Proved undeveloped reserves.
  Future


Future


Future


FutureProduction


Cash


Production


Development


Future NetYear Ended December 31,(a)

(MBoe)


Inflows


Costs


Costs


Cash Flows2010


2,773


$
140,379


$
15,606


$
335,932


$
(211,159
)2011


6,693



334,169



39,972



338,572



(44,375
)2012


9,745



481,341



61,134



343,472



76,7352013


10,002



491,888



67,462



140,537



283,8892014


8,519



419,546



63,749



42,382



313,415Thereafter


70,064



3,412,344



1,075,053







2,337,291Total


107,796
(b)

$
5,279,667


$
1,322,976


$
1,200,895


$
2,755,796     (a)
    
    Beginning in 2011 and thereafter, the production and cash flows
    represent the drilling results from the respective year plus the
    incremental effects of proved undeveloped drilling from the
    preceding years beginning in 2010.(b)
    
    Includes additions of 13.6 MMBoe resulting from the
    adoption of the new SEC rules related to disclosures of oil and
    natural gas reserves that are effective for fiscal years ending
    on or after December 31, 2009. For more information on the
    comparability of our reserves as a result of the new SEC rules,
    see Item 1A. Risk Factors. 35




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##### Table of Contents



Proved Undeveloped ReservesConverted toProved Developed ReservesNatural





Investment in ConversionOil


Gas


Total


of Proved Undeveloped ReservesYear Ended December 31,

(MBbls)


(MMcf)


(MBoe)


to Proved Developed Reserves(In thousands)2008(a)


4,378



15,681



6,992


$
114,0672009


7,453



19,860



10,763



131,773Total


11,831



35,541



17,755


$
245,840     (a)
    
    Our initial disclosures of our reserves occurred in our initial
    public offering in August 2007.      Changes to proved reserves.
  Purchases of

Sales of

Revisions ofExtensions and

Minerals-in-

Minerals-in-

PreviousProduction

Discoveries

Place

Place

EstimatesCore Operating Areas:New Mexico Permian


(7,149
)


45,166



4



(8
)


(4,463
)Texas Permian


(2,962
)


17,218



20,261



(63
)


3,324Emerging Plays:Lower Abo


(577
)


1,068











90Bakken/Three Forks


(187
)


2,437











186Other


(56
)


53











(114
)Total


(10,931
)


65,942



20,265



(71
)


(977
)   Production.
  Extensions and discoveries.
 36




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##### Table of Contents



Purchases of
    minerals-in-place. minerals-in-place
  Sales of
    minerals-in-place. minerals-in-place
  Revisions of previous estimates.
 Developed
    and Undeveloped Acreage    Developed Acres

Undeveloped Acres

Total AcresGross

Net

Gross

Net

Gross

NetCore Operating Areas:New Mexico Permian


107,528



53,144



42,686



16,787



150,214



69,931Texas Permian


245,217



68,428



42,744



22,707



287,961



91,135Emerging Plays:Lower Abo


7,949



6,607



51,230



41,794



59,179



48,401Bakken/Three Forks


23,947



6,350



18,263



4,843



42,210



11,193Other


11,469



1,763



128,769



54,524



140,238



56,287Total


396,110



136,292



283,692



140,655



679,802



276,947   and/or
  2010(a)

2011

2012

ThereafterGross

Net

Gross

Net

Gross

Net

Gross

NetCore Operating Areas:New Mexico Permian


3,654



1,896



2,926



1,085



17,389



4,704



16,692



5,355Texas Permian


9,396



2,211



4,739



1,213



640



58







Emerging Plays:Lower Abo


480



320



3,163



2,443



2,730



2,342



15,453



15,033Bakken/Three Forks






























Other


46,520



19,321



8,378



7,389



3,482



1,039



2,835



993Total


60,050



23,748



19,206



12,130



24,241



8,143



34,980



21,381     (a)
    
    Due to market conditions and prioritization of capital, we have
    deemphasized exploration efforts in certain emerging plays
    having significant lease expirations over the next year, which
    includes the Delaware Basin, Central Basin Platform and Arkoma
    Basin in Arkansas. We have impaired a significant portion of the
    costs associated with these plays. 37




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##### Table of Contents



Title to
    Our Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Shareholders   38




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities Market
    Information    Price Per ShareHigh

Low2008:First Quarter

$
26.44


$
17.33Second Quarter

$
40.97


$
25.12Third Quarter

$
39.07


$
22.31Fourth Quarter

$
27.79


$
14.712009:First Quarter

$
28.10


$
17.29Second Quarter

$
33.57


$
23.50Third Quarter

$
38.70


$
25.17Fourth Quarter

$
47.00


$
33.71      Dividend
    Policy   Repurchase
    of Equity Securities   39




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##### Table of Contents



Item 6.
    Selected
    Financial Data   Selected
    Historical Financial Information      
    On February 27, 2006, the initial closing of the Chase Oil
    transaction occurred, and we acquired the Chase Group Properties
    for approximately 35 million shares of common stock and
    approximately $409 million in cash;
    In August 2007, we completed our initial public offering of
    common stock from which we received proceeds of
    $173 million that we used to retire outstanding borrowings
    under our second lien term loan facility totaling
    $86.5 million, and to retire outstanding borrowings under
    our credit facility totaling $86.5 million;
    In July 2008, we closed our acquisition of the Henry Entities
    and additional non-operated interests in oil and natural gas
    properties from persons affiliated with the Henry Entities. In
    August 2008 and September 2008, we acquired additional
    non-operated interests in oil and natural gas properties from
    persons affiliated with the Henry Entities. We paid
    approximately $583.7 million in net cash for the
    acquisition of the Henry Entities and the related acquisition of
    the along-side interests, which was funded with borrowings under
    our credit facility and net proceeds of approximately
    $242.4 million from our private placement of
    8,302,894 shares of our common stock;
    In September 2009, we issued $300 million of
    8.625% senior notes at a discount, resulting in a
    yield-to-maturity of 8.875 percent. Currently, the interest
    rate associated with the senior notes is higher than our credit
    facility, which will result in us having higher absolute
    interest rates in the foreseeable future; and
    In December 2009, we closed the Wolfberry Acquisitions for
    approximately $260 million in cash, subject to usual and
    customary post-closing adjustments. The Wolfberry Acquisitions
    were primarily funded with borrowings under our credit facility.
    As of December 31, 2009, these acquisitions included
    estimated total proved reserves of 19.9 MMBoe, of which
    69 percent were oil and 25 percent were proved
    developed. Our 2009 results of operations do not include any
    production, revenues or costs from the Wolfberry Acquisitions. 40




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##### Table of Contents



Chase GroupProperties(b)Concho Resources Inc.


Year EndedYears Ended December 31,


December 31,2009


2008(a)


2007


2006(b)


2005


2005(In thousands, except per share amounts)Statement of operations data:Operating revenues:Oil sales

$
425,361


$
390,945


$
195,596


$
131,773


$
31,621


$
73,132Natural gas sales


119,086



142,844



98,737



66,517



23,315



46,546Total operating revenues


544,447



533,789



294,333



198,290



54,936



119,678Operating costs and expenses:Oil and natural gas production


108,118



91,234



54,267



37,822



14,635



23,277Exploration and abandonments


10,660



38,468



29,098



5,612



2,666



Depreciation, depletion and amortization


206,143



123,912



76,779



60,722



11,485



18,646Accretion of discount on asset retirement obligations


1,058



889



444



287



89



446Impairments of long-lived assets


12,197



18,417



7,267



9,891



2,295



194General and administrative


43,237



35,553



21,336



12,577



8,055



1,702Stock-based compensation


9,040



5,223



3,841



9,144



3,252



Bad debt expense


(1,035
)


2,905















Contract drilling fees  stacked rigs










4,269











Ineffective portion of cash flow hedges






(1,336
)


821



(1,193
)


1,148



(Gain) loss on derivatives not designated as hedges


156,857



(249,870
)


20,274







5,001



1,062Total operating costs and expenses


546,275



65,395



218,396



134,862



48,626



45,327Income (loss) from operations


(1,828
)


468,394



75,937



63,428



6,310



74,351Other income (expense):Interest expense


(28,292
)


(29,039
)


(36,042
)


(30,567
)


(3,096
)


Other, net


(414
)


1,432



1,484



1,186



779



Total other expense


(28,706
)


(27,607
)


(34,558
)


(29,381
)


(2,317
)


Income (loss) before income taxes


(30,534
)


440,787



41,379



34,047



3,993



74,351Income tax (expense) benefit


20,732



(162,085
)


(16,019
)


(14,379
)


(2,039
)


Net income (loss)


(9,802
)


278,702



25,360



19,668



1,954


$
74,351Preferred stock dividends










(45
)


(1,244
)


(4,766
)Effect of induced conversion of preferred stock














11,601



Net income (loss) applicable to common shareholders

$
(9,802
)

$
278,702


$
25,315


$
30,025


$
(2,812
)Basic earnings (loss) per share:Net income (loss) per share

$
(0.12
)

$
3.52


$
0.39


$
0.63


$
(0.70
)Shares used in basic earnings (loss) per share


84,912



79,206



64,316



47,287



4,059Diluted earnings (loss) per share:Net income (loss) per share

$
(0.12
)

$
3.46


$
0.38


$
0.59


$
(0.70
)Shares used in diluted earnings (loss) per share


84,912



80,587



66,309



50,729



4,059Other financial data:Net cash provided by operations

$
359,546


$
391,397


$
169,769


$
112,181


$
25,070


$
93,162Net cash used in investing activities


(586,148
)


(946,050
)


(160,353
)


(596,852
)


(61,902
)


(35,611
)Net cash provided by (used in) financing activities


212,084



541,981



19,886



476,611



45,358



(57,551
)Capital expenditures for oil and natural gas properties


684,741



1,185,831



190,634



1,226,180



72,758



32,352EBITDAX(c)


475,094



402,080



217,760



149,077



29,990



94,699     (a)
    
    The acquisition of the Henry Entities occurred on July 31,
    2008. See Note D of the Notes to Consolidated Financial
    Statements included in Item 8. Financial Statements and
    Supplementary Data.(b)
    
    The acquisition of the Chase Group Properties was substantially
    consummated on February 27, 2006, as a result of the
    combination of assets owned by Chase Oil and certain of its
    affiliates and Concho Equity Holdings Corp., see
    Item 1. Business  General.(c)
    
    EBITDAX is defined as net income (loss), plus
    (1) exploration and abandonments expense,
    (2) depreciation, depletion and amortization expense,
    (3) accretion expense, (4) impairments of long-lived
    assets, (5) non-cash stock-based compensation expense,
    (6) ineffective portion of cash flow hedges and unrealized
    (gain) loss on derivatives not designated as hedges,
    (7) interest expense, (8) bad debt expense and
    (9) federal and state income taxes. See Item 1.
    Business  Non-GAAP Financial Measures and
    Reconciliations.  41




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##### Table of Contents



Chase GroupConcho Resources Inc.

Properties(b)December 31,

December 31,2009

2008(a)

2007

2006(b)

2005

2005(In thousands)Balance sheet data:Cash and cash equivalents

$
3,234


$
17,752


$
30,424


$
1,122


$
9,182


$
Property and equipment, net


2,856,289



2,401,404



1,394,994



1,320,655



170,583



149,042Total assets


3,171,085



2,815,203



1,508,229



1,390,072



232,385



161,792Long-term debt, including current maturities


845,836



630,000



327,404



495,500



72,000



Equity


1,335,428



1,325,154



775,398



575,156



109,670



150,814     (a)
    
    The acquisition of the Henry Entities occurred on July 31,
    2008. See Note D of the Notes to Consolidated Financial
    Statements included in Item 8. Financial Statements
    and Supplementary Data.(b)
    
    The acquisition of the Chase Group Properties was substantially
    consummated on February 27, 2006, as a result of the
    combination of assets owned by Chase Oil and certain of its
    affiliates and Concho Equity Holdings Corp., see
    Item 1. Business  General. 42




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations     Overview  PV-10
 Commodity
    Prices    
    developments generally impacting the Middle East, including Iraq
    and Iran;
    the extent to which members of the Organization of Petroleum
    Exporting Countries and other oil exporting nations are able to
    continue to manage oil supply through export quotas;
    the overall global demand for oil; and
    overall North American natural gas supply and demand
    fundamentals, including:  
    the impact of the decline of the United States economy,
    weather conditions, and
    liquefied natural gas deliveries to the United States.     43




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##### Table of Contents



Years Ended December 31,2009

2008

2007Average NYMEX prices:Oil (Bbl)

$
61.95


$
99.75


$
72.45Natural gas (MMBtu)

$
4.16


$
8.89


$
7.11High / Low NYMEX prices:Oil (Bbl):High

$
81.37


$
145.29


$
98.18Low

$
33.98


$
33.87


$
50.48Natural gas (MMBtu):High

$
6.07


$
13.58


$
8.64Low

$
2.51


$
5.29


$
5.38    Recent
    Events  Equity issuance.
  Wolfberry acquisitions.
  Senior notes issuance.
  Borrowing base.
   44




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##### Table of Contents



2010 capital budget.
  2010Budget(In millions)Drilling and recompletion opportunities in our core operating
    area

$
502Projects operated by third parties


8Emerging plays, acquisition of leasehold acreage and other
    property interests, and geological and geophysical


82Facilities capital in our core operating areas


33Total 2010 capital budget

$
625  Henry
    Entities Acquisition   Derivative
    Financial Instruments  Derivative financial instrument
    exposure.
  New commodity derivative
    contracts.
  Aggregate

Index

ContractVolume

Price

PeriodOil (volumes in Bbls):Price collar


600,000


$45.00 - $49.00(a)


3/1/09 - 5/31/09Price swap


960,000


$59.44(a)


7/1/09 - 12/31/09Price swap


273,000


$67.50(a)


8/1/09 - 12/31/09Price swap


3,847,000


$65.81(a)


1/1/10 - 12/31/10Price swap


2,601,000


$71.66(a)


1/1/11 - 12/31/11 45




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##### Table of Contents



Aggregate

Index

ContractVolume

Price

PeriodNatural gas (volumes in MMBtus):Price collar


1,500,000


$5.00 - $5.81(b)


10/1/09 - 12/31/09Price collar


1,500,000


$5.00 - $5.81(b)


1/1/10 - 3/31/10Price collar


3,000,000


$5.25 - $5.75(b)


4/1/10 - 9/30/10Price collar


1,500,000


$6.00 - $6.80(b)


10/1/10 - 12/31/10Price collar


1,500,000


$6.00 - $6.80(b)


1/1/11 - 3/31/11Price swap


3,000,000


$4.31(b)


4/1/09 - 9/30/09Price swap


1,050,000


$4.66(b)


7/1/09 - 12/31/09Price swap


8,314,000


$6.12(b)


1/1/10 - 12/31/10Price swap


300,000


$7.29(b)


1/1/11 - 3/31/11Price swap


5,400,000


$6.96(b)


4/1/11 - 12/31/11Basis swap


600,000


$0.79(c)


7/1/09 - 9/30/09Basis swap


450,000


$0.89(c)


10/1/09 - 12/31/09Basis swap


8,400,000


$0.85(c)


1/1/10 - 12/31/10Basis swap


1,800,000


$0.87(c)


1/1/11 - 3/31/11Basis swap


5,400,000


$0.76(c)


4/1/11 - 12/31/11     (a)
    
    The index prices for the oil price swaps and collars are based
    on the NYMEX-West Texas Intermediate monthly average futures
    price.(b)
    
    The index prices for the natural gas price swaps and collars are
    based on the NYMEX-Henry Hub last trading day futures price.(c)
    
    The basis differential between the El Paso Permian delivery
    point and NYMEX Henry Hub delivery point.  Post-2009 commodity derivative
    contracts.
  Aggregate

Index

ContractVolume

Price

PeriodOil (volumes in Bbls):Price swap


670,000


$
83.72
(a)


1/1/10 - 12/31/10Price swap


195,000


$
76.85
(a)


3/1/10 - 12/31/10Price swap


792,000


$
81.77
(a)


1/1/11 - 12/31/11Price swap


168,000


$
89.00
(a)


1/1/12 - 12/31/12Natural gas (volumes in MMBtus):Price swap


418,000


$
5.99
(b)


2/1/10 - 12/31/10Price swap


1,250,000


$
5.55
(b)


3/1/10 - 12/31/10Price swap


5,076,000


$
6.14
(b)


1/1/11 - 12/31/11Price swap


300,000


$
6.54
(b)


1/1/12 - 12/31/12     (a)
    
    The index price for the oil price swap is based on the
    NYMEX-West Texas Intermediate monthly average futures price.(b)
    
    The index prices for the natural gas price swaps are based on
    the NYMEX-Henry Hub last trading day futures price. 46




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##### Table of Contents



Results
    of Operations    Years Ended December 31,2009

2008

2007Production and operating data:Net production volumes:Oil (MBbl)


7,336



4,586



3,014Natural gas (MMcf)


21,568



14,968



12,064Total (MBoe)


10,931



7,081



5,025Average daily production volumes:Oil (Bbl)


20,099



12,530



8,258Natural gas (Mcf)


59,090



40,896



33,052Total (Boe)


29,947



19,346



13,766Average prices:Oil, without derivatives (Bbl)

$
57.98


$
91.92


$
68.58Oil, with derivatives (Bbl)(a)

$
68.18


$
83.55


$
64.90Natural gas, without derivatives (Mcf)

$
5.52


$
9.59


$
8.08Natural gas, with derivatives (Mcf)(a)

$
6.03


$
9.64


$
8.33Total, without derivatives (Boe)

$
49.81


$
79.80


$
60.52Total, with derivatives (Boe)(a)

$
57.65


$
74.49


$
58.93Operating costs and expenses per Boe:Lease operating expenses and workover costs

$
5.82


$
6.31


$
5.56Oil and natural gas taxes

$
4.07


$
6.57


$
5.24General and administrative

$
4.78


$
5.76


$
5.01Depreciation, depletion and amortization

$
18.86


$
17.50


$
15.28     (a)
    
    Includes the effect of (i) commodity derivatives designated
    as hedges and reported in oil and natural gas sales and
    (ii) includes the cash payments/receipts from commodity
    derivatives not designated as hedges and reported in operating
    costs and expenses. See the table that reflects the amounts of
    cash payments/receipts from commodity derivatives not designated
    as hedges that were included in computing average prices with
    derivatives and reconciles to the amount in gain (loss) on
    derivatives not designated as hedges as reported in the
    statements of operations in Item 1.
    Business  Our Production, Prices and Expenses. 47




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##### Table of Contents



Years Ended December 31,2009

2008

2007West

Grayburg

Grayburg

GrayburgWolfberry(a)

Jackson

Jackson

JacksonProduction and operating data:Net production volumes:Oil (MBbl)


1,320



1,429



1,045



706Natural gas (MMcf)


3,361



4,108



3,407



2,792Total (MBoe)


1,880



2,114



1,613



1,171Average prices:Oil, without derivatives (Bbl)

$
58.30


$
58.87


$
94.35


$
68.85Natural gas, without derivatives (Mcf)

$
6.03


$
5.76


$
10.67


$
8.75Total, without derivatives (Boe)

$
51.72


$
51.00


$
83.68


$
62.36Production costs per Boe:Lease operating expenses including workovers

$
4.86


$
4.47


$
4.55


$
3.48Oil and natural gas taxes

$
3.77


$
4.42


$
7.20


$
5.43     (a)
    
    This field was acquired as part of the acquisition of the Henry
    Properties on July 31, 2008. 48




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##### Table of Contents



Year
    Ended December 31, 2009 Compared to Year Ended
    December 31, 2008  Oil and natural gas revenues.
  
    average realized oil price (excluding the effects of derivative
    activities) was $57.98 per Bbl during the year ended
    December 31, 2009, a decrease of 37 percent from
    $91.92 per Bbl during the year ended December 31, 2008;
    total oil production was 7,336 MBbl for the year ended
    December 31, 2009, an increase of 2,750 MBbl
    (60 percent) from 4,586 MBbl for the year ended
    December 31, 2008;
    average realized natural gas price (excluding the effects of
    derivative activities) was $5.52 per Mcf during the year ended
    December 31, 2009, a decrease of 42 percent from $9.59
    per Mcf during the year ended December 31, 2008; and
    total natural gas production was 21,568 MMcf for the year
    ended December 31, 2009, an increase of 6,600 MMcf
    (44 percent) from 14,968 MMcf for the year ended
    December 31, 2008.  Hedging activities.
      Oil Hedges

Natural Gas HedgesYear Ended

Year EndedDecember 31,

December 31,2008

2008(Dollars in thousands)Decrease in oil and natural gas revenues

$
(30,591
)

$
(696
)Hedged volumes (Bbls and MMBtus, respectively)


951,000



4,941,000   Production expenses.
  Years Ended December 31,2009


2008Amount


Per Boe


Amount


Per Boe(In thousands, except per unit amounts)Lease operating expenses

$
62,647


$
5.73


$
43,725


$
6.17Taxes:Ad valorem


5,493



0.50



2,738



0.39Production


39,017



3.57



43,775



6.18Workover costs


961



0.09



996



0.14Total oil and natural gas production expenses

$
108,118


$
9.89


$
91,234


$
12.88  49




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##### Table of Contents



Exploration and abandonments
    expense.
  Years Ended December 31,2009


2008(In thousands)Geological and geophysical

$
3,663


$
3,140Exploratory dry holes


1,941



3,722Leasehold abandonments and other


5,056



31,606Total exploration and abandonments

$
10,660


$
38,468        50




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##### Table of Contents



Depreciation, depletion and amortization
    expense.
  Years Ended December 31,2009


2008Amount


Per Boe


Amount


Per Boe(In thousands, except per unit amounts)Depletion of proved oil and natural gas properties

$
201,908


$
18.47


$
121,464


$
17.15Depreciation of other property and equipment


2,680



0.25



1,808



0.26Amortization of intangible asset  operating rights


1,555



0.14



640



0.09Total depletion, depreciation and amortization

$
206,143


$
18.86


$
123,912


$
17.50Oil price used to estimate proved oil reserves at period end

$
57.65






$
41.00Natural gas price used to estimate proved natural gas reserves
    at period end

$
3.87






$
5.71         Impairment of long-lived assets.
 51




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##### Table of Contents



General and administrative
    expenses.
  Years Ended December 31,2009


2008Amount


Per Boe


Amount


Per Boe(In thousands, except per unit amounts)General and administrative expenses  recurring

$
44,477


$
4.06


$
36,170


$
5.11Non-recurring bonus paid to Henry Entities employees, see
    Note K


10,150



0.93



4,328



0.61Non-cash stock-based compensation  stock options


4,285



0.39



3,101



0.44Non-cash stock-based compensation  restricted stock


4,755



0.44



2,122



0.30Less: Third-party operating fee reimbursements


(11,390
)


(1.04
)


(4,945
)


(0.70
)Total general and administrative expenses

$
52,277


$
4.78


$
40,776


$
5.76         Bad debt expense.
  (Gain) loss on derivatives not designated as
    hedges.
 52




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##### Table of Contents



mark-to-market
  Years Ended December 31,2009


2008(In thousands)Cash payments (receipts):Commodity derivatives  oil

$
(74,796
)

$
7,780Commodity derivatives  natural gas


(10,955
)


(1,426
)Financial derivatives  interest


3,335



Mark-to-market
    (gain) loss:Commodity derivatives  oil


229,897



(253,960
)Commodity derivatives  natural gas


7,958



(3,347
)Financial derivatives  interest


1,418



1,083(Gain) loss on derivatives not designated as hedges

$
156,857


$
(249,870
)   Interest expense.
  yield-to-maturity
    Income tax provisions.
   Year
    Ended December 31, 2008 Compared to Year Ended
    December 31, 2007  Oil and natural gas revenues.
 53




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##### Table of Contents




    average realized oil prices (excluding the effects of derivative
    activities) were $91.92 per Bbl during the year ended
    December 31, 2008, an increase of 34 percent from
    $68.58 per Bbl during the year ended December 31, 2007;
    total oil production was 4,586 MBbl for the year ended
    December 31, 2008, an increase of 1,572 MBbl
    (52 percent) from 3,014 MBbl for the year ended
    December 31, 2007;
    average realized natural gas prices (excluding the effects of
    derivative activities) were $9.59 per Mcf during the year ended
    December 31, 2008, an increase of 19 percent from
    $8.08 per Mcf during the year ended December 31, 2007;
    total natural gas production was 14,968 MMcf for the year
    ended December 31, 2008, an increase of 2,904 MMcf
    (24 percent) from 12,064 MMcf for the year ended
    December 31, 2007;  Hedging activities.
      Oil Hedges

Natural Gas HedgesYears Ended

Years EndedDecember 31,

December 31,2008

2007

2008

2007(Dollars in thousands)Increase (decrease) in oil and natural gas revenues

$
(30,591
)

$
(11,091
)

$
(696
)

$
1,291Hedged volumes (Bbls and MMBtus, respectively)


951,000



1,076,750



4,941,000



6,482,600   Oil and natural gas production
    costs.
  Years Ended December 31,2008


2007Amount


Per Boe


Amount


Per Boe(In thousands, except per unit amounts)Lease operating expenses

$
43,725


$
6.17


$
26,480


$
5.27Taxes:Ad valorem


2,738



0.39



2,012



0.40Production


43,775



6.18



24,301



4.84Workover costs


996



0.14



1,474



0.29Total oil and natural gas production expenses

$
91,234


$
12.88


$
54,267


$
10.80  54




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##### Table of Contents



Exploration and abandonments
    expense.
  Years Ended December 31,2008


2007(In thousands)Geological and geophysical





$
3,140


$
4,089Exploratory dry holes






3,722



21,923Leasehold abandonments and other






31,606



3,086Total exploration and abandonments





$
38,468


$
29,098        55




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##### Table of Contents



Depreciation, depletion and amortization
    expense.
  Years Ended December 31,2008


2007Amount


Per Boe


Amount


Per Boe(In thousands, except per unit amounts)Depletion of proved oil and natural gas properties

$
121,464


$
17.15


$
75,744


$
15.07Depreciation of other property and equipment


1,808



0.26



1,035



0.21Amortization of intangible asset  operating rights


640



0.09







Total depletion, depreciation and amortization

$
123,912


$
17.50


$
76,779


$
15.28Oil price used to estimate proved oil reserves at period end

$
41.00






$
92.50Natural gas price used to estimate proved natural gas reserves
    at period end

$
5.71






$
6.80       Impairment of long-lived assets.
  General and administrative
    expenses.
  Years Ended December 31,2008


2007Amount


Per Boe


Amount


Per Boe(In thousands, except per unit amounts)General and administrative expenses  recurring

$
36,170


$
5.11


$
22,419


$
4.47Non-recurring bonus paid to Henry Entities employees, see
    Note K


4,328



0.61







Non-cash stock-based compensation  stock options


3,101



0.44



2,463



0.49Non-cash stock-based compensation  restricted stock


2,122



0.30



1,378



0.27Less: Third-party operating fee reimbursements


(4,945
)


(0.70
)


(1,083
)


(0.22
)Total general and administrative expenses

$
40,776


$
5.76


$
25,177


$
5.01    56




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##### Table of Contents



Bad debt expense.
  Contract drilling fees  stacked
    rigs.
  Gains (losses) on derivatives not designated as
    hedges.
  mark-to-market
  Years Ended December 31,2008


2007(In thousands)Cash payments (receipts):Commodity derivatives  oil

$
7,780


$
Commodity derivatives  natural gas


(1,426
)


(1,815
)Financial derivatives  interest






Mark-to-market
    (gain) loss:Commodity derivatives  oil


(253,960
)


22,988Commodity derivatives  natural gas


(3,347
)


(899
)Financial derivatives  interest


1,083



(Gain) loss on derivatives not designated as hedges

$
(249,870
)

$
20,274  57




---



##### Table of Contents



Interest expense.
    Income tax provision.
  Capital
    Commitments, Capital Resources and Liquidity  Capital commitments.
  Oil and natural gas properties.
       58




---



##### Table of Contents



Acquisitions.
  Contractual obligations.
    Payments Due by PeriodLess Than


1 - 3


3 - 5


More ThanTotal


1 Year


Years


Years


5 Years(In thousands)Long-term debt(a)

$
850,000


$



$



$
550,000


$
300,000Cash interest expense on debt(b)


265,769



51,330



82,550



60,733



71,156Operating lease obligations(c)


10,012



2,291



3,033



2,386



2,302Drilling commitments(d)


1,781



1,781











Employment agreements with executive officers(e)


3,930



1,965



1,965







Henry Entities bonus obligation(f)


5,763



5,763











Derivative liabilities(g)


91,756



62,419



29,337







Asset retirement obligations(h)


22,754



3,262



704



620



18,168Total contractual obligations

$
1,251,765


$
128,811


$
117,589


$
613,739


$
391,626     (a)
    
    See Note J of the Notes to Consolidated Financial
    Statements included in Item 8. Financial Statements
    and Supplementary Data for information regarding future
    interest payment obligations on the 8.625% unsecured senior
    notes. The amounts included in the table above represent
    principal maturities only.(b)
    
    Cash interest expense on the 8.625% unsecured senior notes is
    estimated assuming no principal repayment until the due date of
    October 1, 2017. Cash interest expense on the credit
    facility is estimated assuming (i) a principal balance
    outstanding equal to the balance at December 31, 2009 of
    $550 million with no principal repayment until the
    instrument due date of July 31, 2013 and (ii) a fixed
    interest rate of 2.8 percent, which was our interest rate at
    December 31, 2009. Also included in the Less than
    1 year column is accrued interest at
    December 31, 2009, for both the Senior Notes and credit
    facility of approximately $10.1 million.(c)
    
    See Note K of the Notes to Consolidated Financial
    Statements included in Item 8. Financial Statements
    and Supplementary Data.(d)
    
    Consists of daywork drilling contracts related to drilling rigs
    contracted through June 30, 2010. See Note K of the
    Notes to Consolidated Financial Statements included in
    Item 8. Financial Statements and Supplementary
    Data.(e)
    
    Represents amounts of cash compensation we are obligated to pay
    to our executive officers under employment agreements assuming
    such employees continue to serve the entire term of their
    employment agreement and their cash compensation is not adjusted.(f)
    
    Represents bonuses we agreed to pay certain former employees of
    the Henry Entities at each of the first and second anniversaries
    of the closing of the Henry Properties acquisition. See
    Note K of the Notes to Consolidated Financial Statements
    included in Item 8. Financial Statements and
    Supplementary Data. 59




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##### Table of Contents



(g)
    
    Derivative obligations represent commodity and interest rate
    derivatives that were valued at December 31, 2009. The
    ultimate settlement amounts of our derivative obligations are
    unknown because they are subject to continuing market risk. See
    Item 7A. Quantitative and Qualitative Disclosures
    About Market Risk and Note I of the Notes to
    Consolidated Financial Statements included in Item 8.
    Financial Statements and Supplementary Data for additional
    information regarding our derivative obligations.(h)
    
    Amounts represent costs related to expected oil and natural gas
    property abandonments related to proved reserves by period, net
    of any future accretion. See Note E of the Notes to
    Consolidated Financial Statements included in Item 8.
    Financial Statements and Supplementary Data.  Off-balance sheet
    arrangements.
  Capital resources.
  Cash flow from operating activities.
  Cash flow used in investing activities.
  Cash flow from financing activities.
       60




---



##### Table of Contents



2 3
          Financial markets.
     61




---



##### Table of Contents



Liquidity.
  2 3
  Book capitalization and current
    ratio.
  Inflation and changes in prices.
 Critical
    Accounting Policies and Practices     62




---



##### Table of Contents



Successful
    Efforts Method of Accounting
        unit-of-production unit-of-production unit-of-production
  Oil
    and Natural Gas Reserves and Standardized Measure of Discounted
    Net Future Cash Flows
  12-month first-day-of-the-month last-day-of-the-year
   63




---



##### Table of Contents



PV-10
    Asset
    Retirement Obligations
    Impairment
    of Long-Lived Assets
    Valuation
    of Stock-Based Compensation
   Recent
    Accounting Pronouncements   64




---



##### Table of Contents



Business combinations.
  Fair value.
  Oil and natural gas.
      Reserve estimation. Modernization of the Oil and Gas Reporting Requirements
   65




---



##### Table of Contents



12-month
  Fair value.
    
    Entities must disclose the amounts of, and reasons for,
    significant transfers between Level 1 and Level 2, as
    well as those into and out of Level 3, of the fair value
    hierarchy. Transfers into a level must be disclosed separately
    from transfers out of the level. Entities are required to judge
    the significance of transfers based on earnings and total assets
    or liabilities or, when changes in fair value are recognized in
    other comprehensive income, on total equity;
    Entities must also disclose and consistently follow their policy
    for when to recognize transfers into and out of the levels,
    which might be, for example, on the date of the event resulting
    in the transfer or at the beginning or end of the reporting
    period;
    Entities must separately present gross information about
    purchases, sales, issuances, and settlements in the
    reconciliation disclosure of Level 3 measurements, which
    are measurements requiring the use of significant unobservable
    inputs;
    For Level 2 and Level 3 measurements, an entity must
    disclose information about inputs and valuation techniques used
    in both recurring and nonrecurring fair value measurements. If a
    valuation technique changes, for example, from a market approach
    to an income approach, an entity must disclose the change and
    the reason for it. The amendments include implementation
    guidance on disclosures of valuation techniques and
    inputs; and
    Fair value measurement disclosures must be presented by class of
    assets and liabilities. Identifying appropriate classes requires
    judgment, and will often require the disaggregation of assets or
    liabilities included within a line item on the financial
    statements. An entity must determine the appropriate classes
    requiring disclosure based on the nature and risks of the assets
    and liabilities, their classification in the fair value
    hierarchy, and the level of disaggregated information required
    by other U.S. GAAP for specific assets and liabilities,
    such as derivatives.      Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk   66




---



##### Table of Contents



Credit risk.
   Commodity price risk.
     Interest rate risk.
 67




---



##### Table of Contents



Derivative Instruments Net Assets (Liabilities)(a)Commodities


Interest Rate


Total(In thousands)Fair value of contracts outstanding at December 31, 2008

$
173,523


$
(1,083
)

$
172,440Changes in fair values(b)


(152,104
)


(4,753
)


(156,857
)Contract maturities


(85,751
)


3,335



(82,416
)Fair value of contracts outstanding at December 31, 2009

$
(64,332
)

$
(2,501
)

$
(66,833
)     (a)
    
    Represents the fair values of open derivative contracts subject
    to market risk.(b)
    
    At inception, new derivative contracts entered into by us have
    no intrinsic value.  Item 8.
    Financial
    Statements and Supplementary Data  page F-1.
 68




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures   Evaluation of Disclosure Controls and
    Procedures. Rule 13a-15(b) Rules 13a-15(e) 15d-15(e)
   Changes in Internal Control over Financial
    Reporting. Rule 13a-15(f)
 69




---



##### Table of Contents



MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
        Form 10-K,
 70




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control  Integrated Framework
        Internal Control  Integrated
    Framework
       71




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters Equity
    Compensation Plans    (3)Number of Securities(2)

Remaining Available forWeighted Average

Future Issuance Under(1)

Exercise

Equity CompensationNumber of Securities to be

Price of

Plans (ExcludingIssued Upon Exercise of

Outstanding

Securities Reflected inPlan Category

Outstanding Options

Options

Column (1))Equity compensation plan approved by security holders(a)


2,156,503


$
14.11



1,581,226Equity compensation plan not approved by security holders(b)





$




Total


2,156,503







1,581,226     (a)
    
    2006 Stock Incentive Plan. See Note G of the Notes to
    Consolidated Financial Statements included in Item 8.
    Financial Statements and Supplementary Data.(b)
    
    None.    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   72




---



##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules, and Reports on
    Form 8-K  (a)
    Listing
    of Financial Statements  Financial
    Statements
                  (b)
    Exhibits    (c)
    Financial
    Statement Schedules    Exhibits
  ExhibitNumber

Exhibit2.1


Purchase Agreement, dated June 5, 2008, by and among Concho
    Resources Inc., James C. Henry and Paula Henry, Henry Securities
    Ltd., Henchild LLC, Henry Family Investment Group, Henry Holding
    LP, Henry Energy LP, Aguasal Holding, HELP Investment LLC, Henry
    Capital LLC, Henry Operating LLC, Henry Petroleum LP, Quail
    Ranch LLC, Aguasal Management LLC, and Aguasal LP (filed as
    Exhibit 2.1 to the Companys Current Report on Form 8-K on
    June 9, 2008, and incorporated herein by reference).2.2


Purchase and Sale Agreement, dated November 20, 2009, between
    Terrace Petroleum Corporation, et al., as Seller, and COG
    Operating LLC, as Buyer, (filed as Exhibit 2.1 to the
    Companys Current Report of Form 8-K on November 25, 2009,
    and incorporated herein by reference).3.1


Restated Certificate of Incorporation (filed as Exhibit 3.1 to
    the Companys Current Report on Form 8-K on August 6,
    2007, and incorporated herein by reference).3.2


Amended and Restated Bylaws of Concho Resources Inc., as amended
    March 25, 2008 (filed as Exhibit 3.1 to the Companys
    Current Report on Form 8-K on March 26, 2008, and incorporated
    herein by reference).4.1


Specimen Common Stock Certificate (filed as Exhibit 4.1 to the
    Companys Registration Statement on Form S-1/A on July 5,
    2007, and incorporated herein by reference).4.2


Indenture, dated September 18, 2009, between Concho Resources
    Inc., the subsidiary guarantors named therein, and Wells Fargo
    Bank, National Association, as trustee (filed as Exhibit 4.1 to
    the Companys Current Report on Form 8-K on September 22,
    2009, and incorporated herein by reference). 73




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##### Table of Contents



ExhibitNumber

Exhibit4.3


First Supplemental Indenture, dated September 18, 2009, between
    Concho Resources Inc., the subsidiary guarantors named therein,
    and Wells Fargo Bank, National Association, as trustee (filed as
    Exhibit 4.2 to the Companys Current Report on Form 8-K on
    September 22, 2009, and incorporated herein by reference).4.4


Form of 8.625% Senior Notes due 2017 (included in Exhibit
    4.2 to the Companys Current Report on Form 8-K on
    September 22, 2009, and incorporated herein by reference).10.1


Form of Drilling Agreement with Silver Oak Drilling, LLC (filed
    as Exhibit 10.4 to the Companys Registration Statement on
    Form S-1/A on July 5, 2007, and incorporated herein by
    reference).10.2


Salt Water Disposal System Ownership and Operating Agreement
    dated February 24, 2006, among COG Operating LLC, Chase Oil
    Corporation, Caza Energy LLC and Mack Energy Corporation (filed
    as Exhibit 10.5 to the Companys Registration Statement on
    Form S-1 on April 24, 2007, and incorporated herein by
    reference).10.3


Software License Agreement dated March 2, 2006, between Enertia
    Software Systems and Concho Resources Inc. (filed as Exhibit
    10.6 to the Companys Registration Statement on Form S-1 on
    April 24, 2007, and incorporated herein by reference).10.4


Transfer of Operating Rights (Sublease) in a Lease for Oil and
    Gas for Valhalla properties (filed as Exhibit 10.8 to the
    Companys Registration Statement on Form S-1 on April 24,
    2007, and incorporated herein by reference).10.5


Business Opportunities Agreement dated February 27, 2006, among
    Concho Resources Inc. and the other signatories thereto (filed
    as Exhibit 10.11 to the Companys Registration Statement on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10.6


Registration Rights Agreement dated February 27, 2006, among
    Concho Resources Inc. and the other signatories thereto (filed
    as Exhibit 10.12 to the Companys Registration Statement on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10.7
**

Concho Resources Inc. 2006 Stock Incentive Plan (filed as
    Exhibit 10.13 to the Companys Registration Statement on
    Form S-1 on April 24, 2007, and incorporated herein by
    reference).10.8
**

Form of Nonstatutory Stock Option Agreement (filed as Exhibit
    10.16 to the Companys Annual Report on Form 10-K on March
    28, 2008, and incorporated herein by reference).10.9
**

Form of Restricted Stock Agreement (for employees) (filed as
    Exhibit 10.16 to the Companys Registration Statement on
    Form S-1 on April 24, 2007, and incorporated herein by
    reference).10.10
**

Form of Restricted Stock Agreement (for non-employee directors)
    (filed as Exhibit 10.18 to the Companys Annual Report on
    Form 10-K on March 28, 2008, and incorporated herein by
    reference).10.11
**

Employment Agreement dated December 19, 2008, between Concho
    Resources Inc. and Timothy A. Leach (filed as Exhibit 10.1 to
    the Companys Current Report on Form 8-K on December 19,
    2008, and incorporated herein by reference).10.12
**

Employment Agreement dated December 19, 2008, between Concho
    Resources Inc. and Steven L. Beal (filed as Exhibit 10.2 to the
    Companys Current Report on Form 8-K on December 19, 2008,
    and incorporated herein by reference).10.13
**

Employment Agreement dated December 19, 2008, between Concho
    Resources Inc. and E. Joseph Wright (filed as Exhibit 10.3 to
    the Companys Current Report on Form 8-K on December 19,
    2008, and incorporated herein by reference).10.14
**

Employment Agreement dated December 19, 2008, between Concho
    Resources Inc. and Darin G. Holderness (filed as Exhibit 10.4 to
    the Companys Current Report on Form 8-K on December 19,
    2008, and incorporated herein by reference).10.15
**

Employment Agreement dated December 19, 2008, between Concho
    Resources Inc. and David W. Copeland (filed as Exhibit 10.5 to
    the Companys Current Report on Form 8-K on December 19,
    2008, and incorporated herein by reference).10.16
**

Employment Agreement dated December 19, 2008, between Concho
    Resources Inc. and Matthew G. Hyde (filed as Exhibit 10.6 to the
    Companys Current Report on Form 8-K on December 19, 2008,
    and incorporated herein by reference). 74




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##### Table of Contents



ExhibitNumber

Exhibit10.17
**

Employment Agreement dated December 19, 2008, between Concho
    Resources Inc. and Jack F. Harper (filed as Exhibit 10.7 to the
    Companys Current Report on Form 8-K on December 19, 2008,
    and incorporated herein by reference).10.18
**(a)

Employment Agreement dated November 5, 2009, between Concho
    Resources Inc. and C. William Giraud.10.19
**

Form of Indemnification Agreement between Concho Resources Inc.
    and each of the officers and directors thereof (filed as Exhibit
    10.23 to the Companys Registration Statement on Form S-1
    on April 24, 2007, and incorporated herein by reference).10.20
**

Indemnification Agreement, dated May 21, 2008, by and between
    Concho Resources, Inc. and Matthew G. Hyde (filed as Exhibit
    10.1 to the Companys Current Report on Form 8-K on May 28,
    2008, and incorporated herein by reference).10.21
**

Indemnification Agreement, dated August 25, 2008, by and between
    Concho Resources, Inc. and Darin G. Holderness (filed as Exhibit
    10.1 to the Companys Current Report on Form 8-K on
    August 29, 2008, and incorporated herein by reference).10.22
**

Indemnification Agreement, dated February 27, 2008, by and
    between Concho Resources, Inc. and William H. Easter III
    (filed as Exhibit 10.1 to the Companys Current Report on
    Form 8-K on March 4, 2008, and incorporated herein by
    reference).10.23
**

Indemnification Agreement, dated November 5, 2009, by and
    between Concho Resources, Inc. and Mark B. Puckett (filed as
    Exhibit 10.1 to the Companys Current Report on Form 8-K on
    November 12, 2009, and incorporated herein by reference).10.24
**

Indemnification Agreement, dated November 5, 2009, by and
    between Concho Resources, Inc. and C. William Giraud (filed as
    Exhibit 10.2 to the Companys Current Report on Form 8-K on
    November 12, 2009, and incorporated herein by reference).10.25
**

Form of option letter agreement among Concho Resources Inc.,
    Concho Equity Holdings Corp. and each of Messrs. Leach and Beal
    (filed as Exhibit 10.29 to the Companys Registration
    Statement on Form S-1 on June 6, 2007, and incorporated herein
    by reference).10.26
**

Form of option letter agreement among Concho Resources Inc.,
    Concho Equity Holdings Corp. and each of Messrs. Copeland,
    Kamradt, Thomas and Wright (filed as Exhibit 10.30 to the
    Companys Registration Statement on Form S-1 on June 6,
    2007, and incorporated herein by reference).10.27
**

Form of Amendment to Stock Option Award Agreement with executive
    officers related to the Pre-Combination Options (filed as
    Exhibit 10.1 to the Companys Current Report on Form 8-K on
    November 20, 2007, and incorporated herein by reference).10.28
**

Form of Amendment to Nonstatutory Stock Option Agreement with
    executive officers related to the June 2006 Options (filed as
    Exhibit 10.2 to the Companys Current Report on Form 8-K on
    November 20, 2007, and incorporated herein by reference).10.29
**

Form of Restricted Stock Agreement with executive officers
    related to the June 2006 Options (filed as Exhibit 10.3 to the
    Companys Current Report on Form 8-K on November 20, 2007,
    and incorporated herein by reference).10.30
**

Consulting Agreement dated June 9, 2009, by and between Concho
    Resources Inc. and Steven L. Beal (filed as Exhibit 10.1 to the
    Companys Current Report on Form 8-K on June 12, 2009, and
    incorporated herein by reference).10.31


Common Stock Purchase Agreement, dated June 5, 2008, by and
    among Concho Resources Inc. and the purchasers named therein
    (filed as Exhibit 10.1 to the Companys Current Report on
    Form 8-K on June 9, 2008, and incorporated herein by reference).10.32


Registration Rights Agreement, dated July 31, 2008, by and
    between Concho Resources Inc. and the purchasers named therein
    (filed as Exhibit 10.1 to the Companys Current Report on
    Form 8-K on August 6, 2008, and incorporated herein by
    reference).10.33


Amended and Restated Credit Agreement, dated July 31, 2008, by
    and among Concho Resources Inc., JP Morgan Chase Bank, N.A.,
    Bank of America, N.A., Calyon New York Branch, ING Capital LLC
    and BNP Paribas and certain other lenders party thereto (filed
    as Exhibit 10.2 to the Companys Current Report on Form 8-K
    on August 6, 2008, and incorporated herein by reference). 75




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##### Table of Contents



ExhibitNumber

Exhibit10.34


First Amendment to Amended and Restated Credit Agreement dated
    as of April 7, 2009, to the Amended and Restated Credit
    Agreement, dated July 31, 2008, by and among Concho Resources
    Inc., JP Morgan Chase Bank, N.A., Bank of America, N.A., Calyon
    New York Branch, ING Capital LLC and BNP Paribas and certain
    other lenders party thereto (filed as Exhibit 4.1 to the
    Companys Current Report on Form 8-K on April 9, 2009, and
    incorporated herein by reference).10.35


Limited Consent and Waiver, dated September 4, 2009, to the
    Amended and Restated Credit Agreement dated July 31, 2008, by
    and among Concho Resources Inc., JP Morgan Chase Bank, N.A.,
    Bank of America, N.A., Calyon New York Branch, ING Capital LLC
    and BNP Paribas and certain other lenders party thereto (filed
    as Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    on September 22, 2009, and incorporated herein by reference).12.1
(a)

Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges
    and Preferred Stock Dividends21.1
(a)

Subsidiaries of Concho Resources Inc.23.1
(a)

Consent of Grant Thornton LLP23.2
(a)

Consent of Netherland, Sewell & Associates, Inc.23.3
(a)

Netherland, Sewell & Associates, Inc. Reserve Report23.4
(a)

Consent of Cawley, Gillespie & Associates, Inc.23.5
(a)

Cawley, Gillespie & Associates, Inc. Reserve Report31.1
(a)

Certification of Chief Executive Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.31.2
(a)

Certification of Chief Financial Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.32.1
(b)

Certification of Chief Executive Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.32.2
(b)

Certification of Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.     (a)
    
    Filed herewith.(b)
    
    Furnished herewith.**
    
    Management contract or compensatory plan or arrangement. 76




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GLOSSARY
    OF TERMS    Bbl
    
    One stock tank barrel, of 42 U.S. gallons liquid volume, used
    herein in reference to crude oil, condensate or natural gas
    liquids.Boe
    
    One barrel of crude oil equivalent, a standard convention used
    to express oil and natural gas volumes on a comparable oil
    equivalent basis. Natural gas equivalents are determined under
    the relative energy content method by using the ratio of
    6.0 Mcf of natural gas to 1.0 Bbl of oil or condensate.Bcfe
    
    One billion cubic feet of natural gas equivalent using the ratio
    of one barrel of crude oil, condensate or natural gas liquids to
    six Mcf of natural gas.Basin
    
    A large natural depression on the earths surface in which
    sediments accumulate.Development wells
    
    Wells drilled within the proved area of an oil or natural gas
    reservoir to the depth of a stratigraphic horizon known to be
    productive.Dry hole
    
    A well found to be incapable of producing hydrocarbons in
    sufficient quantities such that proceeds from the sale of such
    production would exceed production expenses, taxes and the
    royalty burden.Exploratory wells
    
    Wells drilled to find and produce oil or natural gas in an
    unproved area, to find a new reservoir in a field previously
    found to be productive of oil or natural gas in another
    reservoir, or to extend a known reservoir.Field
    
    An area consisting of a single reservoir or multiple reservoirs
    all grouped on, or related to, the same individual geological
    structural feature or stratigraphic condition. The field name
    refers to the surface area, although it may refer to both the
    surface and the underground productive formations.GAAP
    
    Generally accepted accounting principles in the United States of
    America.Gross wells
    
    The number of wells in which a working interest is owned.Horizontal drilling
    
    A drilling technique used in certain formations where a well is
    drilled vertically to a certain depth and then drilled at a high
    angle to vertical (which can be greater than 90 degrees) in
    order to stay within a specified interval.Infill wells
    
    Wells drilled into the same pool as known producing wells so
    that oil or natural gas does not have to travel as far through
    the formation.LIBOR
    
    London Interbank Offered Rate, which is a market rate of
    interest.MBbl
    
    One thousand barrels of crude oil, condensate or natural gas
    liquids.MBoe
    
    One thousand Boe.Mcf
    
    One thousand cubic feet of natural gas.MMBbl
    
    One million barrels of crude oil, condensate or natural gas
    liquids.MMBoe
    
    One million Boe.MMBtu
    
    One million British thermal units. 77




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##### Table of Contents



MMcf
    
    One million cubic feet of natural gas.NYMEX
    
    The New York Mercantile Exchange.NYSE
    
    The New York Stock Exchange.Net acres
    
    The percentage of total acres an owner owns out of a particular
    number of acres within a specified tract. For example, an owner
    who has a 50 percent interest in 100 acres owns
    50 net acres.Net wells
    
    The total of fractional working interests owned in gross wells.PV-10
    
    When used with respect to oil and natural gas reserves,
    PV-10 means
    the estimated future gross revenue to be generated from the
    production of proved reserves, net of estimated production and
    future development and abandonment costs, using prices and costs
    in effect at the determination date, before income taxes, and
    without giving effect to non-property-related expenses except
    for specific general and administrative expenses incurred to
    operate the properties, discounted to a present value using an
    annual discount rate of 10 percent.Primary recovery
    
    The period of production in which oil and natural gas is
    produced from its reservoir through the wellbore without
    enhanced recovery technologies, such as water flooding or
    natural gas injection.Productive wells
    
    Wells that produce commercial quantities of hydrocarbons,
    exclusive of their capacity to produce at a reasonable rate of
    return.Proved developed reserves
    
    Has the meaning given to such term in Release
    No. 33-8995:
    Modernization of Oil and Gas Reporting, which defines
    proved reserves as:Proved developed reserves are reserves of any category that can
    be expected to be recovered:(i) Through existing wells with existing equipment and
    operating methods or in which the cost of the required equipment
    is relatively minor compared to the cost of a new well; and(ii) Through installed extraction equipment and
    infrastructure operational at the time of the reserve estimate
    if the extraction is by means not involving a well.Supplemental definitions from the 2007 Petroleum Resources
    Management System:Proved Developed Producing Reserves  Developed
    Producing Reserves are expected to be recovered from completion
    intervals that are open and producing at the time of the
    estimate. Improved recovery reserves are considered producing
    only after the improved recovery project is in operation.Proved Developed Non-Producing Reserves  Developed
    Non-Producing Reserves include shut-in and behind-pipe Reserves.Shut-in Reserves are expected to be recovered from
    (1) completion intervals which are open at the time of the
    estimate but which have not yet started producing,
    (2) wells which were shut-in for market conditions or
    pipeline connections, or (3) wells not capable of
    production for mechanical reasons. Behind-pipe Reserves are
    expected to be recovered from zones in existing wells which will
    require additional 78




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##### Table of Contents



completion work or future recompletion prior to start of
    production. In all cases, production can be initiated or
    restored with relatively low expenditure compared to the cost of
    drilling a new well.Proved reserves
    
    Has the meaning given to such term in Release
    No. 33-8995:
    Modernization of Oil and Gas Reporting, which defines
    proved reserves as:Proved reserves are those quantities of oil and natural gas,
    which, by analysis of geoscience and engineering data, can be
    estimated with reasonable certainty to be economically
    producible  from a given date forward, from known
    reservoirs, and under existing economic conditions, operating
    methods, and government regulations  prior to the
    time at which contracts providing the right to operate expire,
    unless evidence indicates that renewal is reasonably certain,
    regardless of whether deterministic or probabilistic methods are
    used for the estimation. The project to extract the hydrocarbons
    must have commenced or the operator must be reasonably certain
    that it will commence the project within a reasonable time.(i) The area of the reservoir considered as proved includes:(A) The area identified by
    drilling and limited by fluid contacts, if any, and(B) Adjacent undrilled
    portions of the reservoir that can, with reasonable certainty,
    be judged to be continuous with it and to contain economically
    producible oil or natural gas on the basis of available
    geoscience and engineering data.(ii) In the absence of data on fluid contacts, proved
    quantities in a reservoir are limited by the lowest known
    hydrocarbons (LKH) as seen in a well penetration
    unless geoscience, engineering, or performance data and reliable
    technology establishes a lower contact with reasonable certainty.(iii) Where direct observation from well penetrations has
    defined a highest known oil (HKO) elevation and the
    potential exists for an associated natural gas cap, proved oil
    reserves may be assigned in the structurally higher portions of
    the reservoir only if geoscience, engineering, or performance
    data and reliable technology establish the higher contact with
    reasonable certainty.(iv) Reserves which can be produced economically through
    application of improved recovery techniques (including, but not
    limited to, fluid injection) are included in the proved
    classification when:(A) Successful testing by a
    pilot project in an area of the reservoir with properties no
    more favorable than in the reservoir as a whole, the operation
    of an installed program in the reservoir or an analogous
    reservoir, or other evidence using reliable technology
    establishes the reasonable certainty of the engineering analysis
    on which the project or program was based; and(B) The project has been
    approved for development by all necessary parties and entities,
    including governmental entities. 79




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(v) Existing economic conditions include prices and costs
    at which economic producibility from a reservoir is to be
    determined. The price shall be the average price during the
    12-month
    period prior to the ending date of the period covered by the
    report, determined as an unweighted arithmetic average of the
    first-day-of-the-month
    price for each month within such period, unless prices are
    defined by contractual arrangements, excluding escalations based
    upon future conditions.Proved undeveloped reserves
    
    Has the meaning given to such term in Release
    No. 33-8995:
    Modernization of Oil and Gas Reporting, which defines
    proved reserves as:Proved undeveloped oil and natural gas reserves are reserves of
    any category that are expected to be recovered from new wells on
    undrilled acreage, or from existing wells where a relatively
    major expenditure is required for recompletion.(i) Reserves on undrilled acreage shall be limited to those
    directly offsetting development spacing areas that are
    reasonably certain of production when drilled, unless evidence
    using reliable technology exists that establishes reasonable
    certainty of economic producibility at greater distances.(ii) Undrilled locations can be classified as having
    undeveloped reserves only if a development plan has been adopted
    indicating that they are scheduled to be drilled within five
    years, unless the specific circumstances, justify a longer time.Recompletion
    
    The addition of production from another interval or formation in
    an existing wellbore.Reservoir
    
    A formation beneath the surface of the earth from which
    hydrocarbons may be present. Its
    make-up is
    sufficiently homogenous to differentiate it from other
    formations.SEC
    
    The United States Securities and Exchange Commission.Seismic survey
    
    Also known as a seismograph survey, is a survey of an area by
    means of an instrument which records the travel time of the
    vibrations of the earth. By recording the time interval between
    the source of the shock wave and the reflected or refracted
    shock waves from various formations, geophysicists are better
    able to define the underground configurations.Spacing
    
    The distance between wells producing from the same reservoir.
    Spacing is expressed in terms of acres, e.g.,
    40-acre
    spacing, and is established by regulatory agencies.Standardized measure
    
    The present value (discounted at an annual rate of
    10 percent) of estimated future net revenues to be
    generated from the production of proved reserves net of
    estimated income taxes associated with such net revenues, as
    determined in accordance with Financial Accounting Standards
    Board guidelines, without giving effect to non-property related
    expenses such as indirect general and administrative expenses,
    and debt service or to depreciation, depletion and amortization.
    Standardized measure does not give effect to derivative
    transactions. 80




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Undeveloped acreage
    
    Acreage owned or leased on which wells can be drilled or
    completed to a point that would permit the production of
    commercial quantities of oil and natural gas regardless of
    whether such acreage contains proved reserves.Wellbore
    
    The hole drilled by the bit that is equipped for oil or natural
    gas production on a completed well. Also called a well or
    borehole.Working interest
    
    The right granted to the lessee of a property to explore for and
    to produce and own oil, natural gas, or other minerals. The
    working interest owners bear the exploration, development, and
    operating costs on either a cash, penalty, or carried basis.Workover
    
    Operations on a producing well to restore or increase production. 81




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SIGNATURES    CONCHO RESOURCES INC.
  By
    /s/  Timothy
    A. Leach         Signature

Title

Date/s/  TIMOTHY
    A. LEACHTimothy
    A. Leach

Director, Chairman of the Board of Directors, Chief Executive
    Officer and President (Principal Executive Officer)

February 26, 2010/s/  DARIN
    G. HOLDERNESSDarin
    G. Holderness

Vice President, Chief Financial Officer and Treasurer (Principal
    Financial and Accounting Officer)

February 26, 2010/s/  STEVEN
    L. BEALSteven
    L. Beal

Director

February 26, 2010/s/  TUCKER
    S. BRIDWELLTucker
    S. Bridwell

Director

February 26, 2010/s/  WILLIAM
    H. EASTER IIIWilliam
    H. Easter III

Director

February 26, 2010/s/  W.
    HOWARD KEENAN, JR.W.
    Howard Keenan, Jr.

Director

February 26, 2010/s/  RAY
    M. POAGERay
    M. Poage

Director

February 26, 2010/s/  MARK
    B. PUCKETTMark
    B. Puckett

Director

February 26, 2010/s/  A.
    WELLFORD TABORA.
    Wellford Tabor

Director

February 26, 2010  82




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INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS  PageConsolidated Financial Statements of Concho Resources
    Inc.:Report of Independent Registered Public
    Accounting Firm


F-2Consolidated Balance Sheets as of
    December 31, 2009 and 2008


F-3Consolidated Statements of Operations for the
    Years Ended December 31, 2009, 2008 and 2007


F-4Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2009, 2008 and
    2007


F-5Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2009, 2008 and 2007


F-6Notes to Consolidated Financial Statements


F-7Unaudited Supplementary Information


F-47  F-1




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REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             Internal Control  Integrated
    Framework
  
  
 F-2




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##### Table of Contents



CONCHO
    RESOURCES INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2009


2008(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
3,234


$
17,752Accounts receivable, net of allowance for doubtful accounts:Oil and natural gas


69,199



48,793Joint operations and other


100,120



92,833Related parties


216



314Derivative instruments


1,309



113,149Deferred income taxes


29,284



Prepaid costs and other


13,896



5,942Total current assets


217,258



278,783Property and equipment, at cost:Oil and natural gas properties, successful efforts method


3,358,004



2,693,574Accumulated depletion and depreciation


(517,421
)


(306,990
)Total oil and natural gas properties, net


2,840,583



2,386,584Other property and equipment, net


15,706



14,820Total property and equipment, net


2,856,289



2,401,404Deferred loan costs, net


20,676



15,701Inventory


16,255



19,956Intangible asset, net  operating rights


36,522



37,768Noncurrent derivative instruments


23,614



61,157Other assets


471



434Total assets

$
3,171,085


$
2,815,203LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable:Trade

$
15,443


$
7,462Related parties


291



312Other current liabilities:Bank overdrafts


3,415



9,434Revenue payable


31,069



22,286Accrued and prepaid drilling costs


164,282



154,196Derivative instruments


62,419



1,866Deferred income taxes






37,205Other current liabilities


60,095



38,057Total current liabilities


337,014



270,818Long-term debt


845,836



630,000Noncurrent derivative instruments


29,337



Deferred income taxes


603,286



573,763Asset retirement obligations and other long-term liabilities


20,184



15,468Commitments and contingencies (Note K)Stockholders equity:Common stock, $0.001 par value; 300,000,000 authorized;
    85,815,926 and 84,828,824 shares issued at December 31,
    2009 and 2008, respectively


86



85Additional paid-in capital


1,029,392



1,009,025Retained earnings


306,367



316,169Treasury stock, at cost; 12,380 and 3,142 shares at
    December 31, 2009 and 2008, respectively


(417
)


(125
)Total stockholders equity


1,335,428



1,325,154Total liabilities and stockholders equity

$
3,171,085


$
2,815,203    F-3




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CONCHO
    RESOURCES INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2009


2008


2007(In thousands, except per share amounts)Operating revenues:Oil sales

$
425,361


$
390,945


$
195,596Natural gas sales


119,086



142,844



98,737Total operating revenues


544,447



533,789



294,333Operating costs and expenses:Oil and natural gas production


108,118



91,234



54,267Exploration and abandonments


10,660



38,468



29,098Depreciation, depletion and amortization


206,143



123,912



76,779Accretion of discount on asset retirement obligations


1,058



889



444Impairments of long-lived assets


12,197



18,417



7,267General and administrative (including non-cash stock-based
    compensation of $9,040, $5,223 and $3,841 for the years ended
    December 31, 2009, 2008 and 2007, respectively)


52,277



40,776



25,177Bad debt expense


(1,035
)


2,905



Contract drilling fees  stacked rigs










4,269Ineffective portion of cash flow hedges






(1,336
)


821(Gain) loss on derivatives not designated as hedges


156,857



(249,870
)


20,274Total operating costs and expenses


546,275



65,395



218,396Income (loss) from operations


(1,828
)


468,394



75,937Other income (expense):Interest expense


(28,292
)


(29,039
)


(36,042
)Other, net


(414
)


1,432



1,484Total other expense


(28,706
)


(27,607
)


(34,558
)Income (loss) before income taxes


(30,534
)


440,787



41,379Income tax benefit (expense)


20,732



(162,085
)


(16,019
)Net income(loss)


(9,802
)


278,702



25,360Preferred stock dividends










(45
)Net income (loss) applicable to common shareholders

$
(9,802
)

$
278,702


$
25,315Basic earnings per share:Net income (loss) per share

$
(0.12
)

$
3.52


$
0.39Weighted average shares used in basic earnings per share


84,912



79,206



64,316Diluted earnings per share:Net income (loss) per share

$
(0.12
)

$
3.46


$
0.38Weighted average shares used in diluted earnings per share


84,912



80,587



66,309    F-4




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  Notes





AccumulatedReceivable





OtherAdditional


from





Comprehensive








TotalCommon Stock


Paid-in


Officers and


Retained


Income


Treasury Stock


StockholdersShares


Amount


Capital


Employees


Earnings


(Loss)


Shares


Amount


Equity(In thousands)BALANCE AT DECEMBER 31, 2006


59,093


$
59


$
575,389


$
(12,858
)

$
12,152


$
414






$



$
575,156Comprehensive income:Net income


















25,360















25,360Deferred hedge losses, net of taxes of $13,204






















(20,579
)










(20,579
)Net settlement losses included in earnings, net of taxes of
    $3,830






















5,970











5,970Total comprehensive income


































10,751Stock-based compensation for restricted stock


138







1,378























1,378Cancellation of restricted stock


(2
)






























Stock-based compensation for stock options










2,463























2,463Amendment of certain outstanding stock options due to 409A
    modification


83







(192
)






















(192
)Issuance of common stock for acquisition obligation


54







650























650Net proceeds from initial public equity offering


16,466



17



172,692























172,709Proceeds from notes receivable  officers and employees














12,830



















12,830Accrued interest  officer and employee notes














(302
)


















(302
)6% Series A preferred stock dividends


















(45
)














(45
)BALANCE AT DECEMBER 31, 2007


75,832



76



752,380



(330
)


37,467



(14,195
)










775,398Comprehensive income:Net income


















278,702















278,702Deferred hedge losses, net of taxes of $3,121






















(4,864
)










(4,864
)Net settlement losses included in earnings, net of taxes of
    $12,228






















19,059











19,059Total comprehensive income


































292,897Issuance of common stock


8,303



8



242,418























242,426Stock options exercised


612



1



5,390























5,391Stock-based compensation for restricted stock


128







2,122























2,122Cancellation of restricted stock


(46
)






























Stock-based compensation for stock options










3,101























3,101Excess tax benefits related to stock-based compensation










3,614























3,614Proceeds from notes receivable  employees














333



















333Accrued interest  employee notes














(3
)


















(3
)Purchase of treasury stock


























3



(125
)


(125
)BALANCE AT DECEMBER 31, 2008


84,829



85



1,009,025







316,169







3



(125
)


1,325,154Net loss and total comprehensive loss


















(9,802
)














(9,802
)Stock options exercised


695



1



6,115























6,116Stock-based compensation for restricted stock


300







4,755























4,755Cancellation of restricted stock


(8
)






























Stock-based compensation for stock options










4,285























4,285Excess tax benefits related to stock-based compensation










5,212























5,212Purchase of treasury stock


























9



(292
)


(292
)BALANCE AT DECEMBER 31, 2009


85,816


$
86


$
1,029,392


$



$
306,367


$




12


$
(417
)

$
1,335,428    F-5




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2009


2008


2007(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
(9,802
)

$
278,702


$
25,360Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation, depletion and amortization


206,143



123,912



76,779Impairments of long-lived assets


12,197



18,417



7,267Accretion of discount on asset retirement obligations


1,058



889



444Exploration and abandonments, including dry holes


6,997



35,328



25,009Non-cash compensation expense


9,040



5,223



3,841Bad debt expense


(1,035
)


2,905



Deferred income taxes


(30,919
)


153,484



13,716(Gain) loss on sale of assets


114



(777
)


(368
)Ineffective portion of cash flow hedges






(1,336
)


821(Gain) loss on derivatives not designated as hedges


156,857



(249,870
)


20,274Dedesignated cash flow hedges reclassified from accumulated
    other comprehensive income (loss)






696



(1,103
)Other non-cash items


3,870



6,517



3,376Changes in operating assets and liabilities, net of acquisitions:Accounts receivable


(26,217
)


39,609



(5,759
)Prepaid costs and other


(7,952
)


(5,542
)


(169
)Inventory


4,117



(16,819
)


(150
)Accounts payable


7,960



(25,234
)


(3,493
)Revenue payable


8,118



7,074



4,593Other current liabilities


19,000



18,219



(669
)Net cash provided by operating activities


359,546



391,397



169,769CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures on oil and natural gas properties


(403,798
)


(347,702
)


(162,378
)Acquisition of oil and natural gas properties, businesses and
    other assets


(265,469
)


(584,220
)


(255
)Additions to other property and equipment


(4,396
)


(8,808
)


(2,813
)Proceeds from the sale of oil and natural gas properties and
    other assets


5,099



1,034



3,278Settlements received from (paid on) derivatives not designated
    as hedges


82,416



(6,354
)


1,815Net cash used in investing activities


(586,148
)


(946,050
)


(160,353
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of long-term debt


1,158,650



767,800



300,200Payments of long-term debt


(942,916
)


(465,700
)


(468,800
)Exercise of stock options


6,116



5,391



Excess tax benefit from stock-based compensation


5,212



3,614



Net proceeds from issuance of common stock






242,426



172,709Payments of preferred stock dividends










(132
)Proceeds from repayment of officer and employee notes






333



12,830Payments for loan origination costs


(8,667
)


(15,541
)


(2,572
)Purchase of treasury stock


(292
)


(125
)


Bank overdrafts


(6,019
)


3,783



5,651Net cash provided by financing activities


212,084



541,981



19,886Net increase (decrease) in cash and cash equivalents


(14,518
)


(12,672
)


29,302Cash and cash equivalents at beginning of period


17,752



30,424



1,122Cash and cash equivalents at end of period

$
3,234


$
17,752


$
30,424SUPPLEMENTAL CASH FLOWS:Cash paid for interest and fees, net of $66, $1,233 and $2,647
    capitalized interest

$
14,862


$
27,747


$
41,036Cash paid for income taxes

$
7,299


$
11,304


$
2,050NON-CASH INVESTING AND FINANCING ACTIVITIES:Issuance of common stock in acquisition of oil and natural gas
    properties and other assets

$



$



$
650Deferred tax effect of acquired oil and natural gas properties

$
(835
)

$
206,497


$
(444
)    F-6




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2009, 2008 and 2007
  Note A.
    Organization
    and nature of operations    Note B.
    Summary
    of significant accounting policies  Principles of consolidation.
  Use of estimates in the preparation of financial
    statements.
  Cash equivalents.
  Accounts receivable.
  Inventory.
  Deferred loan costs.
 F-7




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Total(In thousands)2010

$
4,1902011


4,2662012


4,3502013


3,0212014


1,132Thereafter


3,717Total

$
20,676   Oil and natural gas properties. unit-of-production unit-of-production
        and/or
     F-8




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Other property and equipment.
  Intangible assets.
  (In thousands)2010

$
1,5492011


1,5492012


1,5492013


1,5492014


1,549Thereafter


28,777Total

$
36,522   Environmental. and/or
 F-9




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Oil and natural gas sales and
    imbalances.
    December 31,2009

2008(Dollars in thousands)Natural gas imbalance liability (included in asset retirement
    obligations and other long-term liabilities)

$
533


$
472Overtake position (Mcf)


101,278



85,698Natural gas imbalance receivable (included in other assets)

$
444


$
406Undertake position (Mcf)


98,584



90,321   Years Ended December 31,2009

2008(Dollars in thousands)Value of net overtake (undertake) arising during the year
    increasing (decreasing) oil and natural gas production expense

$
23


$
(189
)Net overtake (undertake) position arising during the year (Mcf)


7,317



(19,269
)   Derivative instruments and hedging.
   F-10




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Asset retirement obligations.
  Treasury stock.
  General and administrative expense.
  Stock-based compensation.
  Income taxes.
    Recent accounting pronouncements.
 F-11




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Business combinations.
  Fair value.
  Oil and natural gas.
      Reserve estimation. Modernization of the Oil and Gas Reporting Requirements
 F-12




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    12-month
  Fair value.
    
    Entities must disclose the amounts of, and reasons for,
    significant transfers between Level 1 and Level 2, as
    well as those into and out of Level 3, of the fair value
    hierarchy. Transfers into a level must be disclosed separately
    from transfers out of the level. Entities are required to judge
    the significance of transfers based on earnings and total assets
    or liabilities or, when changes in fair value are recognized in
    other comprehensive income, on total equity;
    Entities must also disclose and consistently follow their policy
    for when to recognize transfers into and out of the levels,
    which might be, for example, on the date of the event resulting
    in the transfer or at the beginning or end of the reporting
    period;
    Entities must separately present gross information about
    purchases, sales, issuances, and settlements in the
    reconciliation disclosure of Level 3 measurements, which
    are measurements requiring the use of significant unobservable
    inputs;
    For Level 2 and Level 3 measurements, an entity must
    disclose information about inputs and valuation techniques used
    in both recurring and nonrecurring fair value measurements. If a
    valuation technique changes, for example, from a market approach
    to an income approach, an entity must disclose the change and
    the reason for it. The amendments include implementation
    guidance on disclosures of valuation techniques and
    inputs; and
    Fair value measurement disclosures must be presented by class of
    assets and liabilities. Identifying appropriate classes requires
    judgment, and will often require the disaggregation of assets or
    liabilities included within a line item on the financial
    statements. An entity must determine the appropriate classes
    requiring disclosure based on the nature and risks of the assets
    and liabilities, their classification in the fair value
    hierarchy, and the level of disaggregated information required
    by other U.S. GAAP for specific assets and liabilities,
    such as derivatives.     F-13




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Various topics.
  Note C.
    Exploratory
    well costs      Years Ended December 31,2009


2008


2007(In thousands)Beginning capitalized exploratory well costs

$
25,553


$
21,056


$
26,503Additions to exploratory well costs pending the determination of
    proved reserves


135,656



25,621



97,368Reclassifications due to determination of proved reserves


(152,200
)


(18,327
)


(95,869
)Exploratory well costs charged to expense


(341
)


(2,797
)


(6,946
)Ending capitalized exploratory well costs

$
8,668


$
25,553


$
21,056     December 31,2009


2008(In thousands)Wells in drilling progress

$
1,767


$
7,765Capitalized exploratory well costs that have been capitalized
    for a period of one year or less


6,901



17,788Capitalized exploratory well costs that have been capitalized
    for a period greater than one year






Total capitalized exploratory well costs

$
8,668


$
25,553     Note D.
    Acquisitions
    and business combinations  Wolfberry acquisitions.
 F-14




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (In thousands)Fair value of the Wolfberry Acquisitions net assets:Proved oil and natural gas properties

$
203,280Unproved oil and natural gas properties


57,573Total assets acquired


260,853Asset retirement obligations


(464
)Net purchase price

$
260,389   Henry Entities acquisition.
        (In thousands)Fair value of Henry Properties net assets:Current assets, net of cash acquired of $19,049(a)

$
86,005Proved oil and natural gas properties


593,634Unproved oil and natural gas properties


233,527Other long-term assets


7,392Intangible assets  operating rights


38,717Total assets acquired


959,275 F-15




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (In thousands)Current liabilities


(114,394
)Asset retirement obligations and other long-term liabilities


(7,529
)Noncurrent derivative liabilities


(39,037
)Deferred tax liability


(214,640
)Total liabilities assumed


(375,600
)Net purchase price

$
583,675Consideration paid for Henry Properties net assets:Cash consideration paid, net of cash acquired of $19,049

$
578,025Acquisition costs(b)


5,650Total purchase price

$
583,675     (a)
    
    Includes a deferred tax asset of approximately $9.0 million.(b)
    
    Acquisition costs include legal and accounting fees, advisory
    fees and other acquisition-related costs.    Year EndedDecember 31, 2008(In thousands,  exceptper share data)(Unaudited)Operating revenues

$
629,214Net income applicable to common shareholders

$
257,540Earnings per common share:Basic

$
2.94Diluted

$
2.90   Note E.
    Asset
    retirement obligations   F-16




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2009


2008


2007(In thousands)Asset retirement obligations, beginning of period

$
16,809


$
9,418


$
8,700Liabilities incurred from new wells


1,526



1,197



471Liabilities assumed in acquisitions


488



7,062



Accretion expense


1,058



889



444Disposition of wells


(223
)






Liabilities settled upon plugging and abandoning wells


(1,255
)






(26
)Revision of estimates


4,351



(1,757
)


(171
)Asset retirement obligations, end of period

$
22,754


$
16,809


$
9,418   Note F.
    Stockholders
    equity and treasury stock  Common stock private placement.
  Initial public offering.
  Secondary public offering.
  Treasury stock.
 F-17




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note G.
    Incentive
    plans  Defined contribution plan.
  Stock incentive plan.
  Number ofCommon SharesApproved and authorized awards


5,850,000Stock option grants, net of forfeitures


(3,463,720
)Restricted stock grants, net of forfeitures


(805,054
)Awards available for future grant


1,581,226   Restricted stock awards.
  Number of

Grant DateRestricted

Fair ValueShares

Per ShareRestricted stock:Outstanding at January 1, 2007


212,216Shares granted


220,995


$
9.22Shares cancelled / forteited


(1,662
)Lapse of restrictions


(60,000
)Outstanding at December 31, 2007


371,549Shares granted


128,001


$
32.13Shares cancelled / forteited


(46,741
)Lapse of restrictions


(45,458
)Outstanding at December 31, 2008


407,351Shares granted


300,119


$
27.10Shares cancelled / forteited


(7,874
)Lapse of restrictions


(202,339
)Outstanding at December 31, 2009


497,257  F-18




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2009


2008


2007(In thousands)Grant date fair value for awards during the period:Employee grants

$
5,187


$
2,693


$
1,633Officer and director grants(a)


3,256



1,420



404Total

$
8,443


$
4,113


$
2,037Stock-based compensation expense from restricted
    stock:Employee grants

$
3,003


$
1,498


$
993Officer and director grants(a)


1,752



624



385Total

$
4,755


$
2,122


$
1,378Income taxes and other information:Income tax benefit related to restricted stock

$
1,790


$
808


$
533Deductions in current taxable income related to restricted stock

$
5,458


$
1,234


$
     (a)
    
    The year ended December 31, 2009 includes effects of
    modifications to certain stock-based awards, see further
    discussion below.  Stock option awards.
  Years Ended December 31,2009

2008

2007Weighted



Weighted



WeightedAverage



Average



AverageNumber of

Exercise

Number of

Exercise

Number of

ExerciseOptions

Price

Options

Price

Options

PriceStock options:Outstanding at beginning of period


2,731,324


$
12.46



3,011,722


$
9.71



2,797,997


$
8.93Options granted


120,301


$
20.75



607,555


$
23.54



215,000


$
12.85Options forfeited


(265
)

$
8.00



(275,593
)

$
14.96



(1,275
)

$
8.00Options exercised


(694,857
)

$
8.80



(612,360
)

$
8.80






$
Outstanding at end of period


2,156,503


$
14.11



2,731,324


$
12.46



3,011,722


$
9.71Vested at end of period


1,460,588


$
11.00



1,567,389


$
9.18



2,063,499


$
8.79Exercisable at end of period


635,861


$
14.67



517,019


$
11.16



508,462


$
10.58  F-19




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedAverage


WeightedNumber


Remaining


AverageVested and


Contractual


Exercise


IntrinsicExercisable


Life


Price


Value(In thousands)Vested options:December 31, 2009:Exercise price

$
8.00



960,669



2.06 years


$
8.00


$
35,449Exercise price

$
12.00



116,728



4.45 years


$
12.00



3,840Exercise price

$
14.80



245,000



6.73 years


$
14.80



7,374Exercise price

$
21.86



104,625



8.18 years


$
21.86



2,411Exercise price

$
31.81



33,566



8.50 years


$
31.81



4401,460,588



3.62 years


$
11.00


$
49,514Exercisable options:December 31, 2009:Exercise price

$
8.00



171,903



4.62 years


$
8.00


$
6,343Exercise price

$
12.00



80,767



5.76 years


$
12.00



2,657Exercise price

$
14.80



245,000



6.73 years


$
14.80



7,374Exercise price

$
21.86



104,625



8.18 years


$
21.86



2,411Exercise price

$
31.81



33,566



8.50 years


$
31.81



440635,861



6.37 years


$
14.67


$
19,225Vested options:December 31, 2008:Exercise price

$
8.00



1,232,647



2.58 years


$
8.00


$
18,268Exercise price

$
12.00



143,492



4.99 years


$
12.00



1,553Exercise price

$
14.68



191,250



7.78 years


$
14.68



1,5561,567,389



3.43 years


$
9.18


$
21,377Exercisable options:December 31, 2008:Exercise price

$
8.00



236,227



5.62 years


$
8.00


$
3,501Exercise price

$
12.00



89,542



6.78 years


$
12.00



969Exercise price

$
14.68



191,250



7.78 years


$
14.68



1,556517,019



6.62 years


$
11.16


$
6,026Vested options:December 31, 2007:Exercise price

$
8.00



1,753,819



3.15 years


$
8.00


$
22,116Exercise price

$
12.00



197,180



5.72 years


$
12.00



1,698Exercise price

$
15.40



112,500



8.45 years


$
15.40



5862,063,499



3.68 years


$
8.79


$
24,400 F-20




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  WeightedAverage


WeightedNumber


Remaining


AverageVested and


Contractual


Exercise


IntrinsicExercisable


Life


Price


Value(In thousands)Exercisable options:December 31, 2007:Exercise price

$
8.00



275,685



6.62 years


$
8.00


$
3,476Exercise price

$
12.00



120,277



7.78 years


$
12.00



1,036Exercise price

$
15.40



112,500



8.45 years


$
15.40



586508,462



7.30 years


$
10.58


$
5,098     Years Ended December 31,2009


2008


2007(In thousands)Grant date fair value for awards during the period:Employee grants

$
50


$
580


$
87Officer and director grants(a)


4,923



5,675



1,921Total

$
4,973


$
6,255


$
2,008Stock-based compensation expense from stock
    options:Employee grants

$
258


$
181


$
17Officer and director grants(a)


4,027



2,920



2,446Total

$
4,285


$
3,101


$
2,463Income taxes and other information:Income tax benefit related to stock options

$
1,614


$
1,990


$
953Deductions in current taxable income related to stock options
    exercised

$
14,414


$
10,756


$
     (a)
    
    The year ended December 31, 2009 includes effects of
    modifications to certain stock-based awards, see further
    discussion below.    2009

2008

2007Risk-free interest rate


2.47
%


3.18
%


4.47
%Expected term (years)


6.25



6.21



6.25Expected volatility


63.19
%


38.88
%


37.33
%Expected dividend yield










    F-21




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Modification of stock-based
    awards.
           F-22




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Future stock-based compensation expense.
  Restricted


StockStock


Options


Total(In thousands)2010

$
4,449


$
2,651


$
7,1002011


2,486



879



3,3652012


783



184



9672013


47



16



63Total

$
7,765


$
3,730


$
11,495   Note H.
    Disclosures
    about fair value of financial instruments    Level 1:
    Unadjusted quoted prices in active markets that are accessible
    at the measurement date for identical, unrestricted assets or
    liabilities. The Company considers active markets to be those in
    which transactions for the assets or liabilities occur in
    sufficient frequency and volume to provide pricing information
    on an ongoing basis.Level 2:
    Quoted prices in markets that are not active, or inputs which
    are observable, either directly or indirectly, for substantially
    the full term of the asset or liability. This category includes
    those derivative instruments that the Company values using
    observable market data. Substantially all of these inputs are
    observable in the marketplace throughout the full term of the
    derivative instrument, can be derived from observable data, or
    supported by observable levels at which transactions are
    executed in the marketplace. Level 2 instruments primarily
    include non-exchange traded derivatives such as
    over-the-counter
    commodity price swaps, basis swaps, investments and interest
    rate swaps. The Companys valuation models are primarily
    industry-standard models that consider various inputs including:
    (i) quoted forward prices for commodities, (ii) time
    value and (iii) current market and contractual prices for
    the underlying instruments, as well as other relevant economic
    measures. The Company utilizes its counterparties
    valuations to assess the reasonableness of its prices and
    valuation techniques.Level 3:
    Measured based on prices or valuation models that require inputs
    that are both significant to the fair value measurement and less
    observable from objective sources (i.e., supported by
    little or no market activity). Level 3 instruments
    primarily include derivative instruments, such as commodity
    price collars and floors, as well as investments. The
    Companys valuation models are primarily industry-standard
    models that consider various inputs including: (i) quoted
    forward prices for commodities, (ii) time value,
    (iii) volatility factors and (iv) current market and
    contractual prices for the underlying instruments, as well as
    other relevant economic measures. Although the Company utilizes
    its counterparties valuations to assess the reasonableness
    of our prices and valuation techniques, the Company does not
    have sufficient corroborating market evidence to support
    classifying these assets and liabilities as Level 2. F-23




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value Measurements at Reporting Date UsingSignificantQuoted Prices in


Other


SignificantActive Markets for


Observable


Unobservable


Fair Value atIdentical Assets


Inputs


Inputs


December 31,(Level 1)


(Level 2)


(Level 3)


2009(In thousands)Assets:Commodity derivative price swap contracts

$



$
48,866


$



$
48,866Commodity derivative price collar contracts










134



134Interest rate derivative swap contracts






1,369







1,369



50,235



134



50,369Liabilities:Commodity derivative price swap contracts






(103,610
)






(103,610
)Commodity derivative basis swap contracts






(8,643
)






(8,643
)Interest rate derivative swap contracts






(3,870
)






(3,870
)Commodity derivative price collar contracts










(1,079
)


(1,079
)



(116,123
)


(1,079
)


(117,202
)Net financial assets (liabilities)

$



$
(65,888
)

$
(945
)

$
(66,833
)     (In thousands)Balance at December 31, 2008

$
49,562Realized and unrealized losses


(6,804
)Settlements, net


(43,703
)Balance at December 31, 2009

$
(945
)Total losses for the period included in earnings attributable to
    the change in unrealized losses relating to assets (liabilities)
    still held at the reporting date

$
(50,507
)  F-24




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Assets
    and Liabilities Measured at Fair Value on a Recurring
    Basis
    December 31, 2009


December 31, 2008Carrying


Fair


Carrying


FairValue


Value


Value


Value(In thousands)Assets:Derivative instruments

$
24,923


$
24,923


$
174,306


$
174,306Liabilities:Derivative instruments

$
91,756


$
91,756


$
1,866


$
1,866Credit facility

$
550,000


$
528,849


$
630,000


$
553,6458.625% senior notes due 2017

$
295,836


$
315,000


$



$
   Cash and cash equivalents, accounts receivable, other current
    assets, accounts payable, interest payable and other current
    liabilities.
  Credit facility.
  Senior notes.
  Derivative instruments. over-the-counter
 F-25




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value Measurements UsingSignificant





TotalQuoted Prices in


Other


Significant


Carrying ValueActive Markets for


Observable


Unobservable


atIdentical Assets


Inputs


Inputs


December 31,(Level 1)


(Level 2)


(Level 3)


2009(In thousands)Assets(1)Current:(a)Commodity derivative price swap contracts

$



$
13,850


$



$
13,850Commodity derivative price collar contracts










134



134



13,850



134



13,984Noncurrent:(b)Commodity derivative price swap contracts






35,016







35,016Interest rate derivative swap contracts






1,369







1,369



36,385







36,385Liabilities(1)Current:(a)Commodity derivative price swap contracts






(65,351
)






(65,351
)Commodity derivative basis swap contracts






(5,254
)






(5,254
)Interest rate derivative swap contracts






(3,870
)






(3,870
)Commodity derivative price collar contracts










(619
)


(619
)



(74,475
)


(619
)


(75,094
)Noncurrent:(b)Commodity derivative price swap contracts






(38,259
)






(38,259
)Commodity derivative basis swap contracts






(3,389
)






(3,389
)Commodity derivative price collar contracts










(460
)


(460
)



(41,648
)


(460
)


(42,108
)Net financial assets (liabilities)

$



$
(65,888
)

$
(945
)

$
(66,833
)(a)Total current financial assets (liabilities), gross
    basis













$
(61,110
)(b)Total noncurrent financial assets (liabilities),
    gross basis














(5,723
)Net financial assets (liabilities)













$
(66,833
)   F-26




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair Value Measurements UsingSignificant





TotalQuoted Prices in


Other


Significant


Carrying ValueActive Markets for


Observable


Unobservable


atIdentical Assets


Inputs


Inputs


December 31,(Level 1)


(Level 2)


(Level 3)


2008(In thousands)Assets(1)Current:(a)Commodity derivative price swap contracts

$



$
64,162


$



$
64,162Commodity derivative price collar contracts










49,562



49,562



64,162



49,562



113,724Noncurrent:(b)Commodity derivative price swap contracts






60,995







60,995Interest rate derivative swap contracts






678







678



61,673







61,673Liabilities(1)Current:(a)Commodity derivative basis swap contracts






(680
)






(680
)Interest rate derivative swap contracts






(1,761
)






(1,761
)



(2,441
)






(2,441
)Noncurrent:(b)Commodity derivative price swap contracts






(516
)






(516
)



(516
)






(516
)Net financial assets (liabilities)

$



$
122,878


$
49,562


$
172,440(a)Total current financial assets (liabilities), gross
    basis













$
111,283(b)Total noncurrent financial assets (liabilities),
    gross basis














61,157Net financial assets (liabilities)













$
172,440     (1)
    
    The fair value of derivative instruments reported in the
    Companys consolidated balance sheets are subject to
    netting arrangements and qualify for net presentation. The
    following table reports the net basis derivative fair values as
    reported in the consolidated balance sheets at December 31,
    2009 and 2008:  December 31,2009


2008(In thousands)Consolidated Balance Sheet Classification:Current derivative contracts:Assets

$
1,309


$
113,149Liabilities


(62,419
)


(1,866
)Net current

$
(61,110
)

$
111,283Noncurrent derivative contracts:Assets

$
23,614


$
61,157Liabilities


(29,337
)


Net noncurrent

$
(5,723
)

$
61,157  F-27




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Assets
    and Liabilities Measured at Fair Value on a Nonrecurring
    Basis
    Impairments of long-lived assets 
    Carrying

Estimated

ImpairmentAmount

Fair Value

Expense(In thousands)Year ended December 31, 2009

$
19,884


$
7,687


$
12,197Year ended December 31, 2008

$
31,792


$
13,375



18,417Year ended December 31, 2007

$
10,445


$
3,178



7,267   Asset Retirement Obligations 
 F-28




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value Measurements UsingSignificantQuoted Prices in

Other

SignificantActive Markets for

Observable

Unobservable

TotalIdentical Assets

Inputs

Inputs

Impairment(Level 1)

(Level 2)

(Level 3)

Loss(In thousands)Year ended December 31, 2009:Impairment of long-lived assets

$



$



$
7,687


$
(12,197
)Asset retirement obligations incurred in current period










2,014Year ended December 31, 2008:Impairment of long-lived assets

$



$



$
13,375


$
(18,417
)Asset retirement obligations incurred in current period










8,259Year ended December 31, 2007:Impairment of long-lived assets

$



$



$
3,178


$
(7,267
)Asset retirement obligations incurred in current period










471   Note I.
    Derivative
    financial instruments       F-29




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Mark-to-market
  New commodity derivative contracts in
    2009.
  Aggregate

Index

ContractVolume

Price

PeriodOil (volumes in Bbls):Price collar


600,000


$45.00 - $49.00(a)


3/1/09 - 5/31/09Price swap


960,000


$59.44(a)


7/1/09 - 12/31/09Price swap


273,000


$67.50(a)


8/1/09 - 12/31/09Price swap


3,847,000


$65.81(a)


1/1/10 - 12/31/10Price swap


2,601,000


$71.66(a)


1/1/11 - 12/31/11Natural gas (volumes in MMBtus):Price collar


1,500,000


$5.00 - $5.81(b)


10/1/09 - 12/31/09Price collar


1,500,000


$5.00 - $5.81(b)


1/1/10 - 3/31/10Price collar


3,000,000


$5.25 - $5.75(b)


4/1/10 - 9/30/10Price collar


1,500,000


$6.00 - $6.80(b)


10/1/10 - 12/31/10Price collar


1,500,000


$6.00 - $6.80(b)


1/1/11 - 3/31/11Price swap


3,000,000


$4.31(b)


4/1/09 - 9/30/09Price swap


1,050,000


$4.66(b)


7/1/09 - 12/31/09Price swap


8,314,000


$6.12(b)


1/1/10 - 12/31/10Price swap


300,000


$7.29(b)


1/1/11 - 3/31/11Price swap


5,400,000


$6.96(b)


4/1/11 - 12/31/11Basis swap


600,000


$0.79(c)


7/1/09 - 9/30/09Basis swap


450,000


$0.89(c)


10/1/09 - 12/31/09Basis swap


8,400,000


$0.85(c)


1/1/10 - 12/31/10Basis swap


1,800,000


$0.87(c)


1/1/11 - 3/31/11Basis swap


5,400,000


$0.76(c)


4/1/11 - 12/31/11     (a)
    
    The index prices for the oil price swaps and collars are based
    on the NYMEX-West Texas Intermediate monthly average futures
    price.(b)
    
    The index prices for the natural gas price swaps and collars are
    based on the NYMEX-Henry Hub last trading day futures price.(c)
    
    The basis differential between the El Paso Permian delivery
    point and NYMEX Henry Hub delivery point. F-30




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Commodity derivative contracts at December 31,
    2009.
  First

Second

Third

FourthQuarter

Quarter

Quarter

Quarter

TotalOil Swaps:(a)2010:Volume (Bbl)


1,272,436



1,152,436



1,064,436



999,436



4,488,744Price per Bbl

$
69.84


$
69.72


$
69.69


$
69.68


$
69.742011:Volume (Bbl)


844,436



805,436



770,436



738,436



3,158,744Price per Bbl

$
77.24


$
77.44


$
77.65


$
77.85


$
77.532012:Volume (Bbl)


126,000



126,000



126,000



126,000



504,000Price per Bbl

$
127.80


$
127.80


$
127.80


$
127.80


$
127.80Natural Gas Swaps:(b)2010:Volume (MMBtu)


2,449,000



2,158,000



1,938,000



1,769,000



8,314,000Price per MMBtu

$
6.11


$
6.12


$
6.13


$
6.14


$
6.122011:Volume (MMBtu)


300,000



1,800,000



1,800,000



1,800,000



5,700,000Price per MMBtu

$
7.29


$
6.96


$
6.96


$
6.96


$
6.98Natural Gas Collars:(b)2010:Volume (MMBtu)


1,500,000



1,500,000



1,500,000



1,500,000



6,000,000Price per MMBtu

$
5.00 - $5.81


$
5.25 - $5.75


$
5.25 - $5.75


$
6.00 - $6.80


$
5.38 - $6.032011:Volume (MMBtu)


1,500,000















1,500,000Price per MMBtu

$
6.00 - $6.80














$
6.00 - $6.80Natural Gas Basis Swaps:(c)2010:Volume (MMBtu)


2,100,000



2,100,000



2,100,000



2,100,000



8,400,000Price per MMBtu

$
0.85


$
0.85


$
0.85


$
0.85


$
0.852011:Volume (MMBtu)


1,800,000



1,800,000



1,800,000



1,800,000



7,200,000Price per MMBtu

$
0.87


$
0.76


$
0.76


$
0.76


$
0.79     (a)
    
    The index prices for the oil price swaps are based on the
    NYMEX-West Texas Intermediate monthly average futures price.(b)
    
    The index prices for the natural gas price swaps and collars are
    based on the NYMEX-Henry Hub last trading day futures price.(c)
    
    The basis differential between the El Paso Permian delivery
    point and NYMEX Henry Hub delivery point. F-31




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Interest rate derivative contracts.
    Years Ended December 31,2009


2008


2007(In thousands)Increase (decrease) in oil and natural gas revenue from
    derivative activity:Cash payments on cash flow hedges in oil sales

$



$
(30,591
)

$
(11,091
)Cash receipts from cash flow hedges in natural gas sales










188Dedesignated cash flow hedges reclassified from AOCI in natural
    gas sales






(696
)


1,103Total decrease in oil and natural gas revenue from derivative
    activity

$



$
(31,287
)

$
(9,800
)Gain (loss) on derivatives not designated as
    hedges:Mark-to-market
    gain (loss):Commodity derivatives:Oil

$
(229,896
)

$
253,960


$
(22,988
)Natural gas


(7,959
)


3,347



899Interest rate derivatives


(1,418
)


(1,083
)


Cash (payments on) receipts from derivatives not designated
    as hedges:Commodity derivatives:Oil


74,796



(7,780
)


Natural gas


10,955



1,426



1,815Interest rate derivatives


(3,335
)






Total gain (loss) on derivatives not designated as hedges

$
(156,857
)

$
249,870


$
(20,274
)Gain (loss) from ineffective portion of cash flow
    hedges

$



$
1,336


$
(821
) F-32




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Years Ended December 31,2009


2008


2007(In thousands)Accumulated other comprehensive income (loss):Cash flow hedges:Mark-to-market
    gain (loss) of cash flow hedges

$



$
(7,985
)

$
(33,783
)Reclassification adjustment of losses to earnings






30,591



10,903Net AOCI upon dedesignation at June 30, 2007










(407
)Net change, before income taxes






22,606



(23,287
)Income tax effect






(8,835
)


9,102Net change, net of income taxes

$



$
13,771


$
(14,185
)Dedesignated cash flow hedges:Net AOCI upon dedesignation at June 30, 2007

$



$



$
407Reclassification adjustment of (gains) losses to earnings






696



(1,103
)Income tax effect






(272
)


272Net change, net of income taxes

$



$
424


$
(424
)     Post-2009 commodity derivative
    contracts.
  Aggregate

Index

ContractVolume

Price

PeriodOil (volumes in Bbls):Price swap


670,000


$83.72(a)


1/1/10 - 12/31/10Price swap


195,000


$76.85(a)


3/1/10 - 12/31/10Price swap


792,000


$81.77(a)


1/1/11 - 12/31/11Price swap


168,000


$89.00(a)


1/1/12 - 12/31/12Natural gas (volumes in MMBtus):Price swap


418,000


$5.99(b)


2/1/10 - 12/31/10Price swap


1,250,000


$5.55(b)


3/1/10 - 12/31/10Price swap


5,076,000


$6.14(b)


1/1/11 - 12/31/11Price swap


300,000


$6.54(b)


1/1/12 - 12/31/12     (a)
    
    The index price for the oil price swap is based on the
    NYMEX-West Texas Intermediate monthly average futures price.(b)
    
    The index prices for the natural gas price swaps are based on
    the NYMEX-Henry Hub last trading day futures price.   F-33




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note J.
    Debt    December 31,2009


2008(In thousands)Credit facility

$
550,000


$
630,0008.625% unsecured senior notes due 2017


300,000



Less: unamortized original issue discount


(4,164
)


Less: current portion






Total long-term debt

$
845,836


$
630,000   Credit facility. 2 3
    same-day Same-day
    8.625% unsecured senior notes.
 F-34




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          (In thousands)2010

$
3842011


4212012


4622013


5082014


558Thereafter


1,831Total

$
4,164   Principal maturities of long-term
    debt.
  (In thousands)2010

$
2011


2012


2013


550,0002014 and thereafter


300,000Total

$
850,000  F-35




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Interest expense.
  Years Ended December 31,2009


2008


2007(In thousands)Cash payments for interest

$
14,862


$
27,747


$
41,036Amortization of original issue discount


102



58



98Amortization of deferred loan origination costs


3,635



2,157



1,338Write-off of deferred loan origination costs and original issue
    discount


57



1,547



2,631Net changes in accruals


9,702



(1,237
)


(6,414
)Interest costs incurred


28,358



30,272



38,689Less: capitalized interest


(66
)


(1,233
)


(2,647
)Total interest expense

$
28,292


$
29,039


$
36,042   Note K.
    Commitments
    and contingencies  Severance agreements.
  Indemnifications.
  Legal actions. quarter-by-quarter
  Acquisition commitments.
  Daywork commitments.
 F-36




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Payments Due by PeriodLess Than

1 - 3

3 - 5

More thanTotal

1 Year

Years

Years

5 Years(In thousands)Daywork drilling contracts with related parties(a)

$
1,000


$
1,000


$



$



$
Daywork drilling contracts assumed in the Henry Properties
    acquisition(b)


781



781











Total contractual drilling commitments

$
1,781


$
1,781


$



$



$
     (a)
    
    Consists of daywork drilling contracts with Silver Oak Drilling,
    LLC, an affiliate of Chase Oil Corporation.(b)
    
    A major oil and natural gas company which owns an interest in
    the wells being drilled and the Company are parties to these
    contracts. Only the Companys 25% share of the contract
    obligation has been reflected above.  Operating leases.
    (In thousands)2010

$
2,2912011


1,7342012


1,2992013


1,1702014 and thereafter


3,518Total

$
10,012   Note L.
    Income
    taxes       F-37




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Income tax provision.
  Years Ended December 31,2009


2008


2007(In thousands)Income (loss) from operations

$
(20,732
)

$
162,085


$
16,019Changes in stockholders equity:Net deferred hedge gains (losses)






(3,121
)


(13,204
)Net settlement losses included in earnings






12,228



3,830Excess tax benefits related to stock-based compensation


(5,212
)


(3,614
)


$
(25,944
)

$
167,578


$
6,645     Years Ended December 31,2009


2008


2007(In thousands)Current:U.S. federal

$
8,434


$
8,080


$
1,902U.S. state and local


1,753



521



40110,187



8,601



2,303Deferred:U.S. federal


(17,647
)


141,668



10,069U.S. state and local


(13,272
)


11,816



3,647(30,919
)


153,484



13,716$
(20,732
)

$
162,085


$
16,019     Years Ended December 31,2009


2008


2007(In thousands)Income (loss) at U.S. federal statutory rate

$
(10,687
)

$
154,276


$
14,483State income taxes (net of federal tax effect)


(899
)


13,372



2,631Revision of previous tax estimates


(1,559
)






Statutory depletion


(581
)






(613
)Change in effective statutory state income tax rate


(6,556
)


(5,671
)


Nondeductible expense & other


(450
)


108



(482
)Income tax expense (benefit)

$
(20,732
)

$
162,085


$
16,019  F-38




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2009


2008(In thousands)Deferred tax asset:Stock-based compensation

$
6,652


$
5,569Derivative instruments


25,186



Statutory depletion carryover






1,635Federal tax credit carryovers


3,495



8,525Asset retirement obligation


8,575



6,403Accrued liabilities


4,180



1,107Allowance for bad debt


918



2,767Other


94



348Total deferred tax assets


49,100



26,354Deferred tax liability:Oil and natural gas properties, principally due to differences
    in basis and depletion and the deduction of intangible drilling
    costs for tax purposes


(609,268
)


(557,011
)Intangible asset  operating rights


(13,763
)


(14,387
)Derivative instruments






(65,689
)Other


(71
)


(235
)Total deferred tax liabilities


(623,102
)


(637,322
)Net deferred tax liability

$
(574,002
)

$
(610,968
)   Note M.
    Major
    customers and derivative counterparties  Sales to major customers.
    Years Ended December 31,2009

2008

2007Navajo Refining Company, L.P.


38
%


59
%


60
%DCP Midstream LP


13
%


18
%


23
%     Derivative counterparties.
 F-39




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note N.
    Related
    party transactions  Consulting Agreement.
  Contract Operator Agreement and Transition Services
    Agreement.
      Saltwater disposal services agreement.
 F-40




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other related party transactions.
      Overriding royalty and royalty
    interests.
    Working interests owned by employees.
  Years Ended December 31,2009

2008

2007(In thousands)Revenues distributed to employees

$
100


$
155


$
Joint interest payments received from employees

$
141


$
635


$
   December 31,2009

2008Amounts included in accounts receivable  related
    parties

$
128


$
300Amounts included in accounts payable  related parties

$
13


$
   Note O.
    Net
    income (loss) per share     F-41




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2009


2008


2007(In thousands)Weighted average common shares outstanding:Basic


84,912



79,206



64,316Dilutive capital options






6



1,001Dilutive common stock options






1,134



901Dilutive restricted stock






241



91Diluted


84,912



80,587



66,309     Note P.
    Other
    current liabilities    December 31,2009


2008(In thousands)Other current liabilities:Accrued production costs

$
24,128


$
15,489Payroll related matters


14,490



11,290Accrued interest


10,055



353Asset retirement obligations


3,262



2,611Other


8,160



8,314Other current liabilities

$
60,095


$
38,057   Note Q.
    Subsidiary
    guarantors   F-42




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Consolidating
    Condensed Balance Sheet
    December 31, 2009
  Parent


Subsidiary


ConsolidatingIssuer


Guarantors


Entries


Total(In thousands)ASSETSAccounts receivable  related parties

$
2,715,307


$
1,738,382


$
(4,453,473
)

$
216Other current assets


33,561



183,481







217,042Total oil and natural gas properties, net






2,840,583







2,840,583Total property and equipment, net






15,706







15,706Investment in subsidiaries


876,154







(876,154
)


Total other long-term assets


44,291



53,247







97,538Total assets

$
3,669,313


$
4,831,399


$
(5,329,627
)

$
3,171,085LIABILITIES AND EQUITYAccounts payable  related parties

$
790,251


$
3,663,513


$
(4,453,473
)

$
291Other current liabilities


68,706



268,017







336,723Other long-term liabilities


629,092



23,715







652,807Long-term debt


845,836











845,836Equity


1,335,428



876,154



(876,154
)


1,335,428Total liabilities and equity

$
3,669,313


$
4,831,399


$
(5,329,627
)

$
3,171,085   Consolidating
    Condensed Balance Sheet
    December 31, 2008
  Parent


Subsidiary


ConsolidatingIssuer


Guarantors


Entries


Total(In thousands)ASSETSAccounts receivable  related parties

$
2,500,186


$
1,432,829


$
(3,932,701
)

$
314Other current assets


120,406



158,063







278,469Total oil and natural gas properties, net






2,386,584







2,386,584Total property and equipment, net






14,820







14,820Investment in subsidiaries


734,969







(734,969
)


Total other long-term assets


73,538



61,478







135,016Total assets

$
3,429,099


$
4,053,774


$
(4,667,670
)

$
2,815,203LIABILITIES AND EQUITYAccounts payable  related parties

$
860,758


$
3,072,255


$
(3,932,701
)

$
312Other current liabilities


39,424



231,082







270,506Other long-term liabilities


573,763



15,468







589,231Long-term debt


630,000











630,000Equity


1,325,154



734,969



(734,969
)


1,325,154Total liabilities and equity

$
3,429,099


$
4,053,774


$
(4,667,670
)

$
2,815,203  F-43




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Condensed Statement of Operations
    For the Year Ended December 31, 2009
  Parent


Subsidiary


ConsolidatingIssuer


Guarantors


Entries


Total(In thousands)Total operating revenues

$



$
544,447


$



$
544,447Total operating costs and expenses


(143,427
)


(402,848
)






(546,275
)Income (loss) from operations


(143,427
)


141,599







(1,828
)Interest expense


(28,292
)










(28,292
)Other, net


(141,185
)


(414
)


141,185



(414
)Income (loss) before income taxes


(312,904
)


141,185



141,185



(30,534
)Income tax benefit


20,732











20,732Net income (loss)

$
(292,172
)

$
141,185


$
141,185


$
(9,802
)   Consolidating
    Condensed Statement of Operations
    For the Year Ended December 31, 2008
  Parent


Subsidiary


ConsolidatingIssuer


Guarantors


Entries


Total(In thousands)Total operating revenues

$
(31,287
)

$
565,076


$



$
533,789Total operating costs and expenses


177,384



(242,779
)






(65,395
)Income from operations


146,097



322,297







468,394Interest expense


(29,039
)










(29,039
)Other, net


323,729



1,432



(323,729
)


1,432Income before income taxes


440,787



323,729



(323,729
)


440,787Income tax expense


(162,085
)










(162,085
)Net income

$
278,702


$
323,729


$
(323,729
)

$
278,702   Consolidating
    Condensed Statement of Operations
    For the Year Ended December 31, 2007
  Parent


Subsidiary


ConsolidatingIssuer


Guarantors


Entries


Total(In thousands)Total operating revenues

$
(2,968
)

$
297,301


$



$
294,333Total operating costs and expenses


(22,472
)


(195,924
)






(218,396
)Income (loss) from operations


(25,440
)


101,377







75,937Interest expense


(36,042
)










(36,042
)Other, net


102,861



1,174



(102,551
)


1,484Income before income taxes


41,379



102,551



(102,551
)


41,379Income tax expense


(16,019
)










(16,019
)Net income

$
25,360


$
102,551


$
(102,551
)

$
25,360Preferred stock dividends


(45
)










(45
)Net income applicable to common shareholders

$
25,315


$
102,551


$
(102,551
)

$
25,315  F-44




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Consolidating
    Condensed Statement of Cash Flows
    For the Year Ended December 31, 2009
  Parent


Subsidiary


ConsolidatingIssuer


Guarantors


Entries


Total(In thousands)Net cash flows provided by (used in) operating activities

$
(295,240
)

$
654,786


$



$
359,546Net cash flows provided by (used in) investing activities


77,185



(663,333
)






(586,148
)Net cash flows provided by (used in) financing activities


218,103



(6,019
)






212,084Net increase (decrease) in cash and cash equivalents


48



(14,566
)






(14,518
)Cash and cash equivalents at beginning of year






17,752







17,752Cash and cash equivalents at end of year

$
48


$
3,186


$



$
3,234   Consolidating
    Condensed Statement of Cash Flows
    For the Year Ended December 31, 2008
  Parent


Subsidiary


ConsolidatingIssuer


Guarantors


Entries


Total(In thousands)Net cash flows provided by (used in) operating activities

$
(532,919
)

$
924,316


$



$
391,397Net cash flows used in investing activities


(5,386
)


(940,664
)






(946,050
)Net cash flows provided by financing activities


538,198



3,783







541,981Net decrease in cash and cash equivalents


(107
)


(12,565
)






(12,672
)Cash and cash equivalents at beginning of year


107



30,317







30,424Cash and cash equivalents at end of year

$



$
17,752


$



$
17,752   Consolidating
    Condensed Statement of Cash Flows
    For the Year Ended December 31, 2007
  Parent


Subsidiary


ConsolidatingIssuer


Guarantors


Entries


Total(In thousands)Net cash flows provided by (used in) operating activities

$
(15,094
)

$
184,863


$



$
169,769Net cash flows provided by (used in) investing activities


631



(160,984
)






(160,353
)Net cash flows provided by financing activities


14,235



5,651







19,886Net increase (decrease) in cash and cash equivalents


(228
)


29,530







29,302Cash and cash equivalents at beginning of year


335



787







1,122Cash and cash equivalents at end of year

$
107


$
30,317


$



$
30,424  F-45




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note R.
    Subsequent
    events  Equity issuance.
 F-46




---



##### Table of Contents



CONCHO
    RESOURCES INC.



UNAUDITED
    SUPPLEMENTARY INFORMATION

December 31, 2009, 2008 and 2007



Capitalized
    Costs December 31,2009


2008(In thousands)Oil and natural gas properties:Proved

$
3,139,424


$
2,316,330Unproved


218,580



377,244Less: accumulated depletion


(517,421
)


(306,990
)Net capitalized costs for oil and natural gas properties

$
2,840,583


$
2,386,584   Costs
    Incurred for Oil and Natural Gas Producing
    Activities(a)
  Years Ended December 31,2009


2008


2007(In thousands)Property acquisition costs:Proved

$
205,817


$
597,713


$
Unproved


74,692



240,294



7,293Exploration


134,105



160,174



116,004Development


265,731



178,842



64,524Total costs incurred for oil and natural gas properties

$
680,345


$
1,177,023


$
187,821     (a)
    
    The costs incurred for oil and natural gas producing activities
    includes the following amounts of asset retirement obligations:  Years Ended December 31,2009


2008


2007(In thousands)Proved property acquisition costs

$
488


$
7,062


$
Exploration costs


452



563



(15
)Development costs


5,425



(1,123
)


315Total

$
6,365


$
6,502


$
300   Reserve
    Quantity Information
  12-month first-day-of-the-month last-day-of-the-year
   F-47




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  UNAUDITED
    SUPPLEMENTARY INFORMATION  (Continued)
          December 31,2009

2008

2007Prices utilitzed in the reserve estimates before adjustments:Oil per Bbl(a)

$
57.65


$
41.00


$
92.50Gas per MMBtu(b)

$
3.87


$
5.71


$
6.80     (a)
    
    The pricing used to estimate our 2009 reserves was based on a
    12-month
    unweighted average
    first-day-of-the-month
    West Texas Intermediate posted price; whereas, the pricing used
    for 2008 and 2007 was based on year-end West Texas Intermediate
    posted prices.(b)
    
    The pricing used to estimate our 2009 reserves was based on a
    12-month
    unweighted average
    first-day-of-the-month
    Henry Hub spot price; whereas, the pricing used for 2008
    and 2007 was based on year-end Henry Hub spot market prices.   F-48




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  UNAUDITED
    SUPPLEMENTARY INFORMATION  (Continued)
    2009

2008

2007Oil and

Natural



Oil and

Natural



Oil and

NaturalCondensate

Gas

Total

Condensate

Gas

Total

Condensate

Gas

Total(MBbls)

(MMcf)

(MBoe)

(MBbls)

(MMcf)

(MBoe)

(MBbls)

(MMcf)

(MBoe)Total Proved Reserves:Balance, January 1


86,285



305,948



137,275



53,361



225,837



91,000



44,322



200,818



77,792Purchase of
    minerals-in-place


13,916



38,096



20,265



20,837



56,022



30,174



105



354



164Sales of
    minerals-in-place


(18
)


(315
)


(71
)














(1
)






(1
)Discoveries and extensions(a)


47,750



109,150



65,942
(b)


24,194



73,380



36,424



13,140



48,751



21,265Revisions of previous estimates


1,421



(14,400
)


(977
)


(7,521
)


(34,323
)


(13,242
)


(1,191
)


(12,022
)


(3,195
)Production


(7,336
)


(21,568
)


(10,931
)


(4,586
)


(14,968
)


(7,081
)


(3,014
)


(12,064
)


(5,025
)Balance, December 31


142,018



416,911



211,503



86,285



305,948



137,275



53,361



225,837



91,000Proved Developed Reserves:January 1


46,661



179,124



76,515



27,617



128,872



49,096



23,443



112,423



42,180December 31


66,578



222,776



103,707



46,661



179,124



76,515



27,617



128,872



49,096Proved Undeveloped Reserves:January 1


39,624



126,824



60,760



25,744



96,965



41,904



20,879



88,395



35,612December 31


75,440



194,135



107,796
(b)


39,624



126,824



60,760



25,744



96,965



41,904     (a)
    
    The 2009, 2008 and 2007 discoveries and extensions included
    42,645, 14,533 and 9,601 net MBoe, respectively, related to
    additions from the Companys infill drilling activities.(b)
    
    Includes additions of 13.6 MMBoe resulting from the
    adoption of the new SEC rules related to disclosures of oil and
    natural gas reserves that are effective for fiscal years ending
    on or after December 31, 2009.  Standardized
    Measure of Discounted Future Net Cash Flows
  12-month first-day-of-the-month
   F-49




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  UNAUDITED
    SUPPLEMENTARY INFORMATION  (Continued)
    December 31,2009


2008


2007(In thousands)Oil and gas producing activities:Future cash inflows

$
10,145,876


$
5,785,109


$
6,507,955Future production costs


(2,956,257
)


(1,666,380
)


(1,517,415
)Future development and abandonment costs(a)


(1,272,695
)


(668,005
)


(484,140
)Future income tax expense


(1,807,582
)


(919,251
)


(1,482,633
)4,109,342



2,531,473



3,023,76710% annual discount factor


(2,187,313
)


(1,332,488
)


(1,591,993
)Standardized measure of discounted future net cash flows

$
1,922,029
(b)

$
1,198,985


$
1,431,774     (a)
    
    Includes $11.7 million, $28.8 million and
    $19.5 million of undiscounted asset retirement cash inflow
    estimated at December 31, 2009, 2008 and 2007,
    respectively, using current estimates of future salvage values
    less future abandonment costs. See Note E for corresponding
    information regarding the Companys discounted asset
    retirement obligations.(b)
    
    Includes $66.4 million resulting from the adoption of the
    new SEC rules related to determination and disclosures of oil
    and natural gas reserves that are effective for fiscal years
    ending on or after December 31, 2009. F-50




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  UNAUDITED
    SUPPLEMENTARY INFORMATION  (Continued)
   Changes
    in Standardized Measure of Discounted Future Net Cash
    Flows
    Years Ended December 31,2009


2008


2007(In thousands)Oil and gas producing activities:Purchases of
    minerals-in-place

$
403,242


$
1,014,689


$
4,054Sales of
    minerals-in-place


(953
)


(24
)


(54
)Extensions and discoveries


844,742



426,208



511,519Net changes in prices and production costs


220,372



(1,622,800
)


802,584Oil and natural gas sales, net of production costs


(436,329
)


(442,554
)


(249,866
)Changes in future development costs


49,626



74,160



72,441Revisions of previous quantity estimates


(19,234
)


(283,557
)


(82,299
)Accretion of discount


162,844



255,660



85,533Changes in production rates, timing and other


(87,960
)


72,850



35,834Change in present value of future net revenues


1,136,350



(505,368
)


1,179,746Net change in present value of future income taxes


(413,306
)


272,579



(458,321
)723,044



(232,789
)


721,425Balance, beginning of year


1,198,985



1,431,774



710,349Balance, end of year

$
1,922,029


$
1,198,985


$
1,431,774  F-51




---



##### Table of Contents



CONCHO
    RESOURCES INC.
  UNAUDITED
    SUPPLEMENTARY INFORMATION  (Continued)
  Selected
    Quarterly Financial Results
    QuarterFirst


Second


Third


Fourth(In thousands, except per share data)Year ended December 31, 2009:Total operating revenues

$
86,002


$
127,332


$
153,494


$
177,619Operating costs and expenses (excluding loss on derivatives not
    designated as hedges)


(97,589
)


(98,615
)


(97,116
)


(96,098
)Loss on derivatives not designated as hedges


(5,046
)


(81,606
)


(7,783
)


(62,422
)Income (loss) from operations

$
(16,633
)

$
(52,889
)

$
48,595


$
19,099Net income (loss)

$
(13,225
)

$
(33,218
)

$
19,762


$
16,879Net income (loss) per common share  Basic

$
(0.16
)

$
(0.39
)

$
0.23


$
0.20Net income (loss) per common share  Diluted

$
(0.16
)

$
(0.39
)

$
0.23


$
0.20Year ended December 31, 2008:Total operating revenues

$
106,711


$
137,383


$
170,457


$
119,238Operating costs and expenses (excluding gain (loss) on
    derivatives not designated as hedges)


(48,205
)


(54,942
)


(90,889
)


(121,229
)Gain (loss) on derivatives not designated as hedges


(17,178
)


(102,456
)


163,312



206,192Income (loss) from operations

$
41,328


$
(20,015
)

$
242,880


$
204,201Net income (loss)

$
22,365


$
(14,420
)

$
141,928


$
128,829Net income (loss) per common share  Basic

$
0.30


$
(0.19
)

$
1.75


$
1.53Net income (loss) per common share  Diluted

$
0.29


$
(0.19
)

$
1.72


$
1.51  F-52




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##### Table of Contents



Index of
    Exhibits
  ExhibitNumber

Exhibit2
.1

Purchase Agreement, dated June 5, 2008, by and among Concho
    Resources Inc., James C. Henry and Paula Henry, Henry Securities
    Ltd., Henchild LLC, Henry Family Investment Group, Henry Holding
    LP, Henry Energy LP, Aguasal Holding, HELP Investment LLC, Henry
    Capital LLC, Henry Operating LLC, Henry Petroleum LP, Quail
    Ranch LLC, Aguasal Management LLC, and Aguasal LP (filed as
    Exhibit 2.1 to the Companys Current Report on
    Form 8-K
    on June 9, 2008, and incorporated herein by reference).2
.2

Purchase and Sale Agreement, dated November 20, 2009,
    between Terrace Petroleum Corporation, et al., as Seller, and
    COG Operating LLC, as Buyer, (filed as Exhibit 2.1 to the
    Companys Current Report of
    Form 8-K
    on November 25, 2009, and incorporated herein by reference).3
.1

Restated Certificate of Incorporation (filed as Exhibit 3.1
    to the Companys Current Report on
    Form 8-K
    on August 6, 2007, and incorporated herein by reference).3
.2

Amended and Restated Bylaws of Concho Resources Inc., as amended
    March 25, 2008 (filed as Exhibit 3.1 to the
    Companys Current Report on
    Form 8-K
    on March 26, 2008, and incorporated herein by reference).4
.1

Specimen Common Stock Certificate (filed as Exhibit 4.1 to
    the Companys Registration Statement on
    Form S-1/A
    on July 5, 2007, and incorporated herein by reference).4
.2

Indenture, dated September 18, 2009, between Concho
    Resources Inc., the subsidiary guarantors named therein, and
    Wells Fargo Bank, National Association, as trustee (filed as
    Exhibit 4.1 to the Companys Current Report on
    Form 8-K
    on September 22, 2009, and incorporated herein by
    reference).4
.3

First Supplemental Indenture, dated September 18, 2009,
    between Concho Resources Inc., the subsidiary guarantors named
    therein, and Wells Fargo Bank, National Association, as trustee
    (filed as Exhibit 4.2 to the Companys Current Report
    on
    Form 8-K
    on September 22, 2009, and incorporated herein by
    reference).4
.4

Form of 8.625% Senior Notes due 2017 (included in
    Exhibit 4.2 to the Companys Current Report on
    Form 8-K
    on September 22, 2009, and incorporated herein by
    reference).10
.1

Form of Drilling Agreement with Silver Oak Drilling, LLC (filed
    as Exhibit 10.4 to the Companys Registration
    Statement on
    Form S-1/A
    on July 5, 2007, and incorporated herein by reference).10
.2

Salt Water Disposal System Ownership and Operating Agreement
    dated February 24, 2006, among COG Operating LLC, Chase Oil
    Corporation, Caza Energy LLC and Mack Energy Corporation (filed
    as Exhibit 10.5 to the Companys Registration
    Statement on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10
.3

Software License Agreement dated March 2, 2006, between
    Enertia Software Systems and Concho Resources Inc. (filed as
    Exhibit 10.6 to the Companys Registration Statement
    on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10
.4

Transfer of Operating Rights (Sublease) in a Lease for Oil and
    Gas for Valhalla properties (filed as Exhibit 10.8 to the
    Companys Registration Statement on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10
.5

Business Opportunities Agreement dated February 27, 2006,
    among Concho Resources Inc. and the other signatories thereto
    (filed as Exhibit 10.11 to the Companys Registration
    Statement on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10
.6

Registration Rights Agreement dated February 27, 2006,
    among Concho Resources Inc. and the other signatories thereto
    (filed as Exhibit 10.12 to the Companys Registration
    Statement on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10
.7**

Concho Resources Inc. 2006 Stock Incentive Plan (filed as
    Exhibit 10.13 to the Companys Registration Statement
    on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10
.8**

Form of Nonstatutory Stock Option Agreement (filed as
    Exhibit 10.16 to the Companys Annual Report on
    Form 10-K
    on March 28, 2008, and incorporated herein by reference).10
.9**

Form of Restricted Stock Agreement (for employees) (filed as
    Exhibit 10.16 to the Companys Registration Statement
    on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10
.10**

Form of Restricted Stock Agreement (for non-employee directors)
    (filed as Exhibit 10.18 to the Companys Annual Report
    on
    Form 10-K
    on March 28, 2008, and incorporated herein by reference).




---



##### Table of Contents



ExhibitNumber

Exhibit10
.11**

Employment Agreement dated December 19, 2008, between
    Concho Resources Inc. and Timothy A. Leach (filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    on December 19, 2008, and incorporated herein by reference)10
.12**

Employment Agreement dated December 19, 2008, between
    Concho Resources Inc. and Steven L. Beal (filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    on December 19, 2008, and incorporated herein by reference).10
.13**

Employment Agreement dated December 19, 2008, between
    Concho Resources Inc. and E. Joseph Wright (filed as
    Exhibit 10.3 to the Companys Current Report on
    Form 8-K
    on December 19, 2008, and incorporated herein by reference).10
.14**

Employment Agreement dated December 19, 2008, between
    Concho Resources Inc. and Darin G. Holderness (filed as
    Exhibit 10.4 to the Companys Current Report on
    Form 8-K
    on December 19, 2008, and incorporated herein by reference).10
.15**

Employment Agreement dated December 19, 2008, between
    Concho Resources Inc. and David W. Copeland (filed as
    Exhibit 10.5 to the Companys Current Report on
    Form 8-K
    on December 19, 2008, and incorporated herein by reference).10
.16**

Employment Agreement dated December 19, 2008, between
    Concho Resources Inc. and Matthew G. Hyde (filed as
    Exhibit 10.6 to the Companys Current Report on
    Form 8-K
    on December 19, 2008, and incorporated herein by reference).10
.17**

Employment Agreement dated December 19, 2008, between
    Concho Resources Inc. and Jack F. Harper (filed as
    Exhibit 10.7 to the Companys Current Report on
    Form 8-K
    on December 19, 2008, and incorporated herein by reference).10
.18**(a)

Employment Agreement dated November 5, 2009, between Concho
    Resources Inc. and C. William Giraud.10
.19**

Form of Indemnification Agreement between Concho Resources Inc.
    and each of the officers and directors thereof (filed as
    Exhibit 10.23 to the Companys Registration Statement
    on
    Form S-1
    on April 24, 2007, and incorporated herein by reference).10
.20**

Indemnification Agreement, dated May 21, 2008, by and
    between Concho Resources, Inc. and Matthew G. Hyde (filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    on May 28, 2008, and incorporated herein by reference)10
.21**

Indemnification Agreement, dated August 25, 2008, by and
    between Concho Resources, Inc. and Darin G. Holderness (filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    on August 29, 2008, and incorporated herein by reference).10
.22**

Indemnification Agreement, dated February 27, 2008, by and
    between Concho Resources, Inc. and William H. Easter III
    (filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    on March 4, 2008, and incorporated herein by reference).10
.23**

Indemnification Agreement, dated November 5, 2009, by and
    between Concho Resources, Inc. and Mark B. Puckett (filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    on November 12, 2009, and incorporated herein by reference).10
.24**

Indemnification Agreement, dated November 5, 2009, by and
    between Concho Resources, Inc. and C. William Giraud (filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    on November 12, 2009, and incorporated herein by reference).10
.25**

Form of option letter agreement among Concho Resources Inc.,
    Concho Equity Holdings Corp. and each of Messrs. Leach and
    Beal (filed as Exhibit 10.29 to the Companys
    Registration Statement on
    Form S-1
    on June 6, 2007, and incorporated herein by reference)10
.26**

Form of option letter agreement among Concho Resources Inc.,
    Concho Equity Holdings Corp. and each of Messrs. Copeland,
    Kamradt, Thomas and Wright (filed as Exhibit 10.30 to the
    Companys Registration Statement on
    Form S-1
    on June 6, 2007, and incorporated herein by reference).10
.27**

Form of Amendment to Stock Option Award Agreement with executive
    officers related to the Pre-Combination Options (filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    on November 20, 2007, and incorporated herein by reference).10
.28**

Form of Amendment to Nonstatutory Stock Option Agreement with
    executive officers related to the June 2006 Options (filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    on November 20, 2007, and incorporated herein by
    reference).




---



##### Table of Contents



ExhibitNumber

Exhibit10
.29**

Form of Restricted Stock Agreement with executive officers
    related to the June 2006 Options (filed as Exhibit 10.3 to
    the Companys Current Report on
    Form 8-K
    on November 20, 2007, and incorporated herein by reference).10
.30**

Consulting Agreement dated June 9, 2009, by and between
    Concho Resources Inc. and Steven L. Beal (filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    on June 12, 2009, and incorporated herein by reference).10
.31

Common Stock Purchase Agreement, dated June 5, 2008, by and
    among Concho Resources Inc. and the purchasers named therein
    (filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    on June 9, 2008, and incorporated herein by reference).10
.32

Registration Rights Agreement, dated July 31, 2008, by and
    between Concho Resources Inc. and the purchasers named therein
    (filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    on August 6, 2008, and incorporated herein by reference).10
.33

Amended and Restated Credit Agreement, dated July 31, 2008,
    by and among Concho Resources Inc., JP Morgan Chase Bank, N.A.,
    Bank of America, N.A., Calyon New York Branch, ING Capital LLC
    and BNP Paribas and certain other lenders party thereto (filed
    as Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    on August 6, 2008, and incorporated herein by reference).10
.34

First Amendment to Amended and Restated Credit Agreement dated
    as of April 7, 2009, to the Amended and Restated Credit
    Agreement, dated July 31, 2008, by and among Concho
    Resources Inc., JP Morgan Chase Bank, N.A., Bank of America,
    N.A., Calyon New York Branch, ING Capital LLC and BNP Paribas
    and certain other lenders party thereto (filed as
    Exhibit 4.1 to the Companys Current Report on
    Form 8-K
    on April 9, 2009, and incorporated herein by reference).10
.35

Limited Consent and Waiver, dated September 4, 2009, to the
    Amended and Restated Credit Agreement dated July 31, 2008,
    by and among Concho Resources Inc., JP Morgan Chase Bank, N.A.,
    Bank of America, N.A., Calyon New York Branch, ING Capital LLC
    and BNP Paribas and certain other lenders party thereto (filed
    as Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    on September 22, 2009, and incorporated herein by
    reference).12
.1(a)

Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges
    and Preferred Stock Dividends21
.1(a)

Subsidiaries of Concho Resources Inc.23
.1(a)

Consent of Grant Thornton LLP23
.2(a)

Consent of Netherland, Sewell & Associates, Inc.23
.3(a)

Netherland, Sewell & Associates, Inc. Reserve Report23
.4(a)

Consent of Cawley, Gillespie & Associates, Inc.23
.5(a)

Cawley, Gillespie & Associates, Inc. Reserve Report31
.1(a)

Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2(a)

Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.1(b)

Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2(b)

Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     (a)
    
    Filed herewith.(b)
    
    Furnished herewith.**
    
    Management contract or compensatory plan or arrangement.