##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 1-33615
 Concho Resources Inc.
  Delaware
    
    76-0818600(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)550 West Texas Avenue, Suite 100Midland, Texas
    
    79701(Address of principal executive offices)
    
    (Zip code)
 (432) 683-7443
  þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
    
    iiiItem 1.Consolidated Financial Statements (Unaudited)
    
    
    iiiItem 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    38Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    58Item 4.Controls and Procedures
    
    
    60PART II  OTHER INFORMATION
    
    
    61Item 1.Legal Proceedings
    
    
    61Item 1A.Risk Factors
    
    
    61Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    62Item 4.Submission of Matters to a Vote of Security Holders
    
    
    63Item 6.Exhibits
    
    
    63EX-31.1EX-31.2EX-32.1EX-32.2




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   
    
    our business and financial strategy;
    
    the estimated quantities of oil and natural gas reserves;
    
    our use of industry technology;
    
    our realized oil and natural gas prices;
    
    the timing and amount of the future production of our oil and natural
gas;
    
    the amount, nature and timing of our capital expenditures;
    
    the drilling of our wells;
    
    our competition and government regulations;
    
    the marketing of our oil and natural gas;
    
    our exploitation activities or property acquisitions;
    
    the costs of exploiting and developing our properties and conducting
other operations;
    
    general economic and business conditions;
    
    our cash flow and anticipated liquidity;
    
    uncertainty regarding our future operating results;
    
    our plans, objectives, expectations and intentions contained in this
report that are not historical; and
    
    our ability to integrate acquisitions.




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PART I  FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements (Unaudited)Consolidated Balance Sheets at June 30, 2009 and December 31, 2008
    
    
    1Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008
    
    
    2Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2009
    
    
    3Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008
    
    
    4Condensed Notes to Consolidated Financial Statements
    
    
    5




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Concho Resources Inc.
 
 Consolidated Balance Sheets  Unaudited
 June 30,
    
    
    December 31,(in thousands, except share and per share data)
    
    2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,081
    
    
    $
    17,752Accounts receivable, net of allowance for doubtful accounts:Oil and natural gas
    
    
    58,430
    
    
    
    48,793Joint operations and other
    
    
    73,992
    
    
    
    92,833Related parties
    
    
    174
    
    
    
    314Derivative instruments
    
    
    26,272
    
    
    
    113,149Prepaid costs and other
    
    
    5,330
    
    
    
    5,942Total current assets
    
    
    167,279
    
    
    
    278,783Property and equipment, at cost:Oil and natural gas properties, successful efforts method
    
    
    2,885,275
    
    
    
    2,693,574Accumulated depletion
    
    
    (413,252
    )
    
    
    (306,990
    )Total oil and natural gas properties, net
    
    
    2,472,023
    
    
    
    2,386,584Other property and equipment, net
    
    
    15,143
    
    
    
    14,820Total property and equipment, net
    
    
    2,487,166
    
    
    
    2,401,404Deferred loan costs, net
    
    
    13,988
    
    
    
    15,701Inventory
    
    
    27,158
    
    
    
    19,956Intangible asset, net  operating rights
    
    
    37,319
    
    
    
    37,768Noncurrent derivative instruments
    
    
    31,438
    
    
    
    61,157Other assets
    
    
    451
    
    
    
    434Total assets
    
    $
    2,764,799
    
    
    $
    2,815,203Liabilities and Stockholders EquityCurrent liabilities:Accounts payable:Trade
    
    $
    15,837
    
    
    $
    7,462Related parties
    
    
    1,352
    
    
    
    312Other current liabilities:Bank overdrafts
    
    
    2,628
    
    
    
    9,434Revenue payable
    
    
    31,262
    
    
    
    22,286Accrued and prepaid drilling costs
    
    
    111,172
    
    
    
    154,196Derivative instruments
    
    
    15,731
    
    
    
    1,866Deferred income taxes
    
    
    3,300
    
    
    
    37,205Other current liabilities
    
    
    38,149
    
    
    
    38,057Total current liabilities
    
    
    219,431
    
    
    
    270,818Long-term debt
    
    
    660,000
    
    
    
    630,000Noncurrent derivative instruments
    
    
    17,656
    
    
    
    Deferred income taxes
    
    
    565,217
    
    
    
    573,763Asset retirement obligations and other long-term liabilities
    
    
    12,940
    
    
    
    15,468Commitments and contingencies (Note K)Stockholders equity:Common stock, $0.001 par value; 300,000,000 authorized; 85,529,591 and 84,828,824
shares issued at June 30, 2009 and December 31, 2008, respectively
    
    
    86
    
    
    
    85Additional paid-in capital
    
    
    1,020,060
    
    
    
    1,009,025Retained earnings
    
    
    269,726
    
    
    
    316,169Treasury stock, at cost; 9,341 and 3,142 shares at June 30, 2009 and December 31, 2008,
respectively
    
    
    (317
    )
    
    
    (125
    )Total stockholders equity
    
    
    1,289,555
    
    
    
    1,325,154Total liabilities and stockholders equity
    
    $
    2,764,799
    
    
    $
    2,815,203
 The accompanying notes are an integral part of these consolidated financial statements.
 1




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Concho Resources Inc.
 
 Consolidated Statements of Operations
 Unaudited
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Operating revenues:Oil sales
    
    $
    101,511
    
    
    $
    95,408
    
    
    $
    166,485
    
    
    $
    171,226Natural gas sales
    
    
    25,821
    
    
    
    41,975
    
    
    
    46,849
    
    
    
    72,868Total operating revenues
    
    
    127,332
    
    
    
    137,383
    
    
    
    213,334
    
    
    
    244,094Operating costs and expenses:Oil and natural gas production
    
    
    25,817
    
    
    
    21,979
    
    
    
    50,583
    
    
    
    38,874Exploration and abandonments
    
    
    1,424
    
    
    
    723
    
    
    
    7,419
    
    
    
    3,464Depreciation, depletion and amortization
    
    
    52,402
    
    
    
    22,010
    
    
    
    103,150
    
    
    
    43,294Accretion of discount on asset retirement obligations
    
    
    301
    
    
    
    148
    
    
    
    579
    
    
    
    301Impairments of long-lived assets
    
    
    4,499
    
    
    
    53
    
    
    
    8,555
    
    
    
    69General and administrative (including non-cash stock-based
compensation of $2,188 and $1,730 for the three months ended
June 30, 2009 and 2008, respectively, and $4,113 and $3,029 for
the six months ended June 30, 2009 and 2008, respectively)
    
    
    14,172
    
    
    
    8,586
    
    
    
    25,918
    
    
    
    16,266Bad debt expense
    
    
    
    
    
    
    1,799
    
    
    
    
    
    
    
    1,799Ineffective portion of cash flow hedges
    
    
    
    
    
    
    (356
    )
    
    
    
    
    
    
    (920
    )Loss on derivatives not designated as hedges
    
    
    81,606
    
    
    
    102,456
    
    
    
    86,652
    
    
    
    119,634Total operating costs and expenses
    
    
    180,221
    
    
    
    157,398
    
    
    
    282,856
    
    
    
    222,781Income (loss) from operations
    
    
    (52,889
    )
    
    
    (20,015
    )
    
    
    (69,522
    )
    
    
    21,313Other income (expense):Interest expense
    
    
    (6,200
    )
    
    
    (3,885
    )
    
    
    (10,570
    )
    
    
    (9,500
    )Other, net
    
    
    180
    
    
    
    311
    
    
    
    (148
    )
    
    
    1,331Total other expense
    
    
    (6,020
    )
    
    
    (3,574
    )
    
    
    (10,718
    )
    
    
    (8,169
    )Income (loss) before income taxes
    
    
    (58,909
    )
    
    
    (23,589
    )
    
    
    (80,240
    )
    
    
    13,144Income tax (expense) benefit
    
    
    25,691
    
    
    
    9,169
    
    
    
    33,797
    
    
    
    (5,199
    )Net income (loss)
    
    $
    (33,218
    )
    
    $
    (14,420
    )
    
    $
    (46,443
    )
    
    $
    7,945Basic earnings per share:Net income (loss) per share
    
    $
    (0.39
    )
    
    $
    (0.19
    )
    
    $
    (0.55
    )
    
    $
    0.11Weighted average shares used in basic earnings per share
    
    
    84,799
    
    
    
    75,665
    
    
    
    84,665
    
    
    
    75,569Diluted earnings per share:Net income (loss) per share
    
    $
    (0.39
    )
    
    $
    (0.19
    )
    
    $
    (0.55
    )
    
    $
    0.10Weighted average shares used in diluted earnings per share
    
    
    84,799
    
    
    
    75,665
    
    
    
    84,665
    
    
    
    77,034
 The accompanying notes are an integral part of these consolidated financial statements.
 2




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Concho Resources Inc.
 
 Consolidated Statement of Stockholders Equity
 Unaudited
 Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury Stock
    
    
    Stockholders(in thousands)
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    EquityBALANCE AT DECEMBER 31, 2008
    
    
    84,829
    
    
    $
    85
    
    
    $
    1,009,025
    
    
    $
    316,169
    
    
    
    3
    
    
    $
    (125
    )
    
    $
    1,325,154Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,443
    )
    
    
    
    
    
    
    
    
    
    
    (46,443
    )Stock options exercised
    
    
    446
    
    
    
    1
    
    
    
    3,930
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,931Stock-based compensation for restricted stock
    
    
    257
    
    
    
    
    
    
    
    2,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,200Cancellation of restricted stock
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation for stock options
    
    
    
    
    
    
    
    
    
    
    1,913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,913Excess tax benefits related to stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,992Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    (192
    )
    
    
    (192
    )BALANCE AT JUNE 30, 2009
    
    
    85,530
    
    
    $
    86
    
    
    $
    1,020,060
    
    
    $
    269,726
    
    
    
    9
    
    
    $
    (317
    )
    
    $
    1,289,555
 The accompanying notes are an integral part of these consolidated financial statements.
 3




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Concho Resources Inc.
 
 Consolidated Statements of Cash Flows
 Unaudited
 Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (46,443
    )
    
    $
    7,945Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    103,150
    
    
    
    43,294Impairments of long-lived assets
    
    
    8,555
    
    
    
    69Accretion of discount on asset retirement obligations
    
    
    579
    
    
    
    301Exploration expense, including dry holes
    
    
    6,294
    
    
    
    1,147Non-cash compensation expense
    
    
    4,113
    
    
    
    3,029Bad debt expense
    
    
    
    
    
    
    1,799Deferred income taxes
    
    
    (39,799
    )
    
    
    4,504(Gain) loss on sale of assets
    
    
    191
    
    
    
    (777
    )Ineffective portion of cash flow hedges
    
    
    
    
    
    
    (920
    )Loss on derivatives not designated as hedges
    
    
    86,652
    
    
    
    119,634Dedesignated cash flow hedges reclassified from accumulated other comprehensive income
    
    
    
    
    
    
    222Other non-cash items
    
    
    1,686
    
    
    
    558Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (18,401
    )
    
    
    (12,003
    )Prepaid costs and other
    
    
    612
    
    
    
    793Inventory
    
    
    (6,786
    )
    
    
    (7,243
    )Accounts payable
    
    
    9,415
    
    
    
    (10,209
    )Revenue payable
    
    
    8,976
    
    
    
    7,718Other current liabilities
    
    
    (562
    )
    
    
    3,087Net cash provided by operating activities
    
    
    118,232
    
    
    
    162,948CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures on oil and natural gas properties
    
    
    (223,283
    )
    
    
    (122,757
    )Additions to other property and equipment
    
    
    (2,014
    )
    
    
    (4,017
    )Proceeds from the sale of oil and natural gas properties and other assets
    
    
    1,004
    
    
    
    1,034Settlements received (paid) on derivatives not designated as hedges
    
    
    61,465
    
    
    
    (16,387
    )Net cash used in investing activities
    
    
    (162,828
    )
    
    
    (142,127
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of long-term debt
    
    
    211,650
    
    
    
    13,000Payments of long-term debt
    
    
    (181,650
    )
    
    
    (39,500
    )Exercise of stock options
    
    
    3,931
    
    
    
    2,373Excess tax benefit from stock-based compensation
    
    
    2,992
    
    
    
    2,146Proceeds from repayment of employee notes
    
    
    
    
    
    
    333Payments for loan origination costs
    
    
    
    
    
    
    (1,001
    )Purchase of treasury stock
    
    
    (192
    )
    
    
    (125
    )Bank overdrafts
    
    
    (6,806
    )
    
    
    3,245Net cash provided by (used in) financing activities
    
    
    29,925
    
    
    
    (19,529
    )Net increase (decrease) in cash and cash equivalents
    
    
    (14,671
    )
    
    
    1,292Cash and cash equivalents at beginning of period
    
    
    17,752
    
    
    
    30,424Cash and cash equivalents at end of period
    
    $
    3,081
    
    
    $
    31,716SUPPLEMENTAL CASH FLOWS:Cash paid for interest and fees, net of $18 and $840 capitalized interest
    
    $
    6,911
    
    
    $
    9,918Cash paid for income taxes
    
    $
    4,232
    
    
    $
    650
 The accompanying notes are an integral part of these consolidated financial statements.
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Concho Resources Inc.
 
 Condensed Notes to Consolidated Financial Statements
 June 30, 2009
 Unaudited
 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.
 Interim financial statements.
  Deferred loan costs.
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  (in thousands)
    
    TotalRemaining 2009
    
    $
    1,7132010
    
    
    3,4262011
    
    
    3,4262012
    
    
    3,4262013
    
    
    1,997Total
    
    $
    13,988
 Intangible assets.
 (in thousands)
    
    TotalRemaining 2009

    $
    7752010
    
    
    1,5502011
    
    
    1,5502012
    
    
    1,5502013
    
    
    1,550Thereafter
    
    
    30,344Total
    
    $
    37,319
 Oil and natural gas sales and imbalances.
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  June 30,
    
    December 31,(dollars in thousands)
    
    2009
    
    2008Natural gas imbalance receivable (included in other assets)
    
    $
    423
    
    
    $
    406Undertake position (Mcf)
    
    
    (94,102
    )
    
    
    (90,321
    )Natural gas imbalance liability (included in asset retirement
obligations and other long-term liabilities)
    
    $
    449
    
    
    $
    472Overtake position (Mcf)
    
    
    79,408
    
    
    
    85,698
 Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Value of net overtake (undertake) arising during the period
(increasing (reducing) oil and natural gas production expense)
    
    $
    9
    
    
    $
    (133
    )
    
    $
    (40
    )
    
    $
    (137
    )Net overtake (undertake) position arising during the period (Mcf)
    
    
    1,697
    
    
    
    (9,117
    )
    
    
    (10,069
    )
    
    
    (8,103
    )
 Treasury stock.
 General and administrative expense .
 Reclassifications.
 Recent accounting pronouncements. Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Disclosures about Derivative Instruments and
Hedging Activities ,
 Determination of
the Useful Life of Intangible Assets Goodwill and Other Intangible
Assets
 The Hierarchy of Generally Accepted Accounting
Principles The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities
 Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies.
 Interim
Disclosures about Fair Value of Financial Instrument Disclosures about Fair Value of Financial Instruments, Interim Financial Reporting,
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly
 
    
    Affirms that the objective of fair value when the market for an asset is not active
is the price that would be received to sell the asset in an orderly transaction;
    
    Clarifies and includes additional factors for determining whether there has been a
significant decrease in market activity for an asset when the market for that asset is
not active;
    
    Eliminates the proposed presumption that all transactions are distressed (not
orderly) unless proven otherwise. The FSP instead requires an entity to base its
conclusion about whether a transaction was not orderly on the weight of the evidence;
    
    Includes an example that provides additional explanation on estimating fair value
when the market activity for an asset has declined significantly;
    
    Requires an entity to disclose a change in valuation technique (and the related
inputs) resulting from the application of the FSP and to quantify its effects, if
practicable; and
    
    Applies to all fair value measurements when appropriate.
  Subsequent Events
 
    
    The period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements;
    
    The circumstances under which a reporting entity should recognize events or
transactions occurring after the balance sheet date in its financial statements; and
    
    The disclosures that a reporting entity should make about events or transactions that
occurred after the balance sheet date.
  Accounting for Transfers of Financial Assets , Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Recent developments in reserves reporting. Modernization of Oil and Gas Reporting
 10




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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Note C. Exploratory well costs
   Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    June 30, 2009
    
    
    June 30, 2009Beginning capitalized exploratory well costs
    
    $
    2,536
    
    
    $
    25,553Additions to exploratory well costs pending the determination of proved reserves
    
    
    91,305
    
    
    
    93,842Reclassifications due to determination of proved reserves
    
    
    (86,537
    )
    
    
    (111,640
    )Exploratory well costs charged to expense
    
    
    
    
    
    
    (451
    )Ending capitalized exploratory well costs
    
    $
    7,304
    
    
    $
    7,304
  June 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Wells in drilling progress
    
    $
    533
    
    
    $
    7,765Capitalized exploratory well costs that have been capitalized for a period of one year or less
    
    
    6,771
    
    
    
    17,788Capitalized exploratory well costs that have been capitalized for a period greater than one year
    
    
    
    
    
    
    Total capitalized exploratory well costs
    
    $
    7,304
    
    
    $
    25,553
  Note D. Acquisitions
 Henry Entities acquisition.
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
   (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
    
    
    593,984Unproved oil and natural gas properties
    
    
    233,492Other long-term assets
    
    
    7,392Intangible assets  operating rights
    
    
    38,740Total assets acquired
    
    
    959,613Current liabilities
    
    
    (113,729
    )Asset retirement obligations and other long-term liabilities
    
    
    (7,529
    )Noncurrent derivative liabilities
    
    
    (39,037
    )Deferred tax liability
    
    
    (215,815
    )Total liabilities assumed
    
    
    (376,110
    )Net purchase price
    
    $
    583,503Consideration paid for Henry Properties net assets:Cash consideration paid, net of cash acquired of $19,049
    
    $
    577,853Acquisition costs (b)
    
    
    5,650Total purchase price
    
    $
    583,503
 
 (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. 12




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Three Months Ended
    Six Months Ended(in thousands, except per share data)
    
    June 30, 2008
    June 30, 2008Operating revenues
    
    $
    185,095
    
    
    $
    339,519Net income
    
    $
    5,941
    
    
    $
    20,483Earnings per common share:Basic
    
    $
    0.07
    
    
    $
    0.24Diluted
    
    $
    0.07
    
    
    $
    0.24
 Note E. Asset retirement obligations
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Asset retirement obligations, beginning of period
    
    $
    18,254
    
    
    $
    8,795
    
    
    $
    16,809
    
    
    $
    9,418Liabilities incurred from new wells
    
    
    102
    
    
    
    275
    
    
    
    270
    
    
    
    309Accretion expense
    
    
    301
    
    
    
    148
    
    
    
    579
    
    
    
    301Disposition of wells sold
    
    
    
    
    
    
    
    
    
    
    (142
    )
    
    
    Liabilities settled upon plugging and abandoning wells
    
    
    (343
    )
    
    
    
    
    
    
    (353
    )
    
    
    Revision of estimates
    
    
    (3,928
    )
    
    
    1,138
    
    
    
    (2,777
    )
    
    
    328Asset retirement obligations, end of period
    
    $
    14,386
    
    
    $
    10,356
    
    
    $
    14,386
    
    
    $
    10,356
 Note F. Stockholders equity
 Common stock private placement.
 13




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Treasury stock.
  Note G. Incentive plans
 Defined contribution plan.
 Stock incentive plan.
 Number ofCommon SharesApproved and authorized awards
    
    
    5,850,000Stock option grants, net of forfeitures
    
    
    (3,461,485
    )Restricted stock grants, net of forfeitures
    
    
    (767,787
    )Awards available for future grant
    
    
    1,620,728
 Restricted stock awards.
 Number of
    
    Grant DateRestricted
    
    Fair ValueShares
    
    Per ShareOutstanding at December 31, 2008
    
    
    407,351Shares granted
    
    
    257,398
    
    
    $
    25.14Shares cancelled / forfeited
    
    
    (2,420
    )Lapse of restrictions
    
    
    (169,519
    )Outstanding at June 30, 2009
    
    
    492,810
 14




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Three Months Ended June 30,
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    2008
    
    2009
    2008Stock-based compensation expense related to restricted stock
    
    $
    1,303
    
    
    $
    468
    
    
    $
    2,200
    
    
    $
    862Income tax benefit related to restricted stock
    
    $
    586
    
    
    $
    187
    
    
    $
    927
    
    
    $
    341Deductions in current taxable income related to restricted stock
    
    $
    3,989
    
    
    $
    771
    
    
    $
    4,367
    
    
    $
    1,200
 Stock option awards.
 WeightedAverageNumber of
    
    ExerciseOptions
    
    PriceOutstanding at December 31, 2008
    
    
    2,731,324
    
    
    $
    12.46Options granted
    
    
    117,801
    
    
    $
    20.40Options exercised
    
    
    (445,789
    )
    
    $
    8.82Outstanding at June 30, 2009
    
    
    2,403,336
    
    
    $
    13.53Vested at end of period
    
    
    1,637,752
    
    
    $
    10.38Vested and exercisable at end of period
    
    
    812,760
    
    
    $
    12.62
 15




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  WeightedAverage
    
    
    WeightedNumber of
    
    
    Remaining
    
    
    AverageStock
    
    
    Contractual
    
    
    Exercise
    
    
    IntrinsicOptions
    
    
    Life
    
    
    Price
    
    
    Value(in thousands)Vested options:June 30, 2009:Exercise price
    
    $
    8.00
    
    
    
    1,183,214
    
    
    2.64 years
    
    $
    8.00
    
    
    $
    24,481Exercise price
    
    $
    12.00
    
    
    
    122,516
    
    
    4.85 years
    
    $
    12.00
    
    
    
    2,045Exercise price
    
    $
    15.35
    
    
    
    210,000
    
    
    6.98 years
    
    $
    15.35
    
    
    
    2,800Exercise price
    
    $
    21.85
    
    
    
    103,500
    
    
    8.67 years
    
    $
    21.85
    
    
    
    708Exercise price
    
    $
    31.33
    
    
    
    18,522
    
    
    8.90 years
    
    $
    31.33
    
    
    
    1,637,752
    
    
    
    
    
    
    $
    10.38
    
    
    $
    30,034Vested and exercisable options:June 30, 2009:Exercise price
    
    $
    8.00
    
    
    
    394,183
    
    
    3.93 years
    
    $
    8.00
    
    
    $
    8,156Exercise price
    
    $
    12.00
    
    
    
    86,555
    
    
    6.04 years
    
    $
    12.00
    
    
    
    1,445Exercise price
    
    $
    15.35
    
    
    
    210,000
    
    
    6.98 years
    
    $
    15.35
    
    
    
    2,800Exercise price
    
    $
    21.85
    
    
    
    103,500
    
    
    8.67 years
    
    $
    21.85
    
    
    
    708Exercise price
    
    $
    31.33
    
    
    
    18,522
    
    
    8.90 years
    
    $
    31.33
    
    
    
    812,760
    
    
    
    
    
    
    $
    12.62
    
    
    $
    13,109
 16




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Grant date fair value for awards during the period:Time vesting options
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    183Stock option grants under the Plan
    
    
    
    
    
    
    794
    
    
    
    1,454
    
    
    
    5,090Total
    
    $
    
    
    
    $
    794
    
    
    $
    1,454
    
    
    $
    5,273Stock-based compensation expense from stock options:Time vesting options
    
    $
    70
    
    
    $
    35
    
    
    $
    141
    
    
    $
    65Performance vesting options- Officers
    
    
    
    
    
    
    133
    
    
    
    71
    
    
    
    284Stock option grants under the Plan
    
    
    815
    
    
    
    1,094
    
    
    
    1,701
    
    
    
    1,818Total
    
    $
    885
    
    
    $
    1,262
    
    
    $
    1,913
    
    
    $
    2,167Income taxes and other information:Income tax benefit related to stock options
    
    $
    415
    
    
    $
    504
    
    
    $
    806
    
    
    $
    858Deductions in current taxable income related to stock options exercised
    
    $
    4,117
    
    
    $
    3,132
    
    
    $
    7,157
    
    
    $
    5,338
  Risk-free interest rate
    
    
    2.46
    %Expected term (years)
    
    
    6.25Expected volatility
    
    
    63.40
    %Expected dividend yield
    
    
    
 Share-Based Payment
 17




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Future stock-based compensation expense.
 Restricted
    
    
    Stock(in thousands)
    
    Stock
    
    
    Options
    
    
    TotalRemaining 2009
    
    $
    2,333
    
    
    $
    1,423
    
    
    $
    3,7562010
    
    
    3,431
    
    
    
    1,694
    
    
    
    5,1252011
    
    
    2,159
    
    
    
    706
    
    
    
    2,8652012
    
    
    643
    
    
    
    166
    
    
    
    8092013
    
    
    24
    
    
    
    14
    
    
    
    38Total
    
    $
    8,590
    
    
    $
    4,003
    
    
    $
    12,593
 Note H. Disclosures about fair value of financial instruments
 Fair Value Measurements Effective Date of FASB Statement
No. 157,
 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.
 
 18




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Cash and cash equivalents, accounts receivable, other current assets, accounts payable,
interest payable and other current liabilities.
 Line of credit.
 19




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Assets and Liabilities Measured at Fair Value on a Recurring Basis
 Derivative instruments.
 Fair value measurements usingQuoted
    
    
    Significant
    
    
    
    
    
    
    Totalprices
    
    
    other
    
    
    Significant
    
    
    carrying valuein active
    
    
    observable
    
    
    unobservable
    
    
    atmarkets
    
    
    inputs
    
    
    inputs
    
    
    June 30,(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2009Assets (1)Current:(a)Commodity derivative price swap contracts
    
    $
    
    
    
    $
    26,408
    
    
    $
    
    
    
    $
    26,408Commodity derivative basis swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate derivative swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    18,856
    
    
    
    18,856
    
    
    
    26,408
    
    
    
    18,856
    
    
    
    45,264Noncurrent:(b)Commodity derivative price swap contracts
    
    
    
    
    
    
    43,604
    
    
    
    
    
    
    
    43,604Commodity derivative basis swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate derivative swap contracts
    
    
    
    
    
    
    3,541
    
    
    
    
    
    
    
    3,541Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,145
    
    
    
    
    
    
    
    47,145Liabilities(1)Current:(a)Commodity derivative price swap contracts
    
    
    
    
    
    
    (27,650
    )
    
    
    
    
    
    
    (27,650
    )Commodity derivative basis swap contracts
    
    
    
    
    
    
    (2,456
    )
    
    
    
    
    
    
    (2,456
    )Interest rate derivative swap contracts
    
    
    
    
    
    
    (3,624
    )
    
    
    
    
    
    
    (3,624
    )Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    (993
    )
    
    
    (993
    )
    
    
    
    (33,730
    )
    
    
    (993
    )
    
    
    (34,723
    )Noncurrent:(b)Commodity derivative price swap contracts
    
    
    
    
    
    
    (29,782
    )
    
    
    
    
    
    
    (29,782
    )Commodity derivative basis swap contracts
    
    
    
    
    
    
    (1,476
    )
    
    
    
    
    
    
    (1,476
    )Interest rate derivative swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    (2,105
    )
    
    
    (2,105
    )
    
    
    
    (31,258
    )
    
    
    (2,105
    )
    
    
    (33,363
    )Total financial assets (liabilities)
    
    $
    
    
    
    $
    8,565
    
    
    $
    15,758
    
    
    $
    24,323(a) Total current financial assets (liabilities), gross basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,541(b) Total noncurrent financial assets (liabilities), gross basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,782Total financial assets (liabilities)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,323
 20




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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Fair value measurements usingQuoted
    
    
    Significant
    
    
    
    
    
    
    Totalprices
    
    
    other
    
    
    Significant
    
    
    carrying valuein active
    
    
    observable
    
    
    unobservable
    
    
    atmarkets
    
    
    inputs
    
    
    inputs
    
    
    December 31,(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2008Assets(1)Current:(a)Commodity derivative price swap contracts
    
    $
    
    
    
    $
    64,162
    
    
    $
    
    
    
    $
    64,162Commodity derivative basis swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate derivative swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    49,562
    
    
    
    49,562
    
    
    
    64,162
    
    
    
    49,562
    
    
    
    113,724Noncurrent:(b)Commodity derivative price swap contracts
    
    
    
    
    
    
    60,995
    
    
    
    
    
    
    
    60,995Commodity derivative basis swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate derivative swap contracts
    
    
    
    
    
    
    678
    
    
    
    
    
    
    
    678Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,673
    
    
    
    
    
    
    
    61,673Liabilities(1)Current:(a)Commodity derivative price swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commodity derivative basis swap contracts
    
    
    
    
    
    
    (680
    )
    
    
    
    
    
    
    (680
    )Interest rate derivative swap contracts
    
    
    
    
    
    
    (1,761
    )
    
    
    
    
    
    
    (1,761
    )Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,441
    )
    
    
    
    
    
    
    (2,441
    )Noncurrent:(b)Commodity derivative price swap contracts
    
    
    
    
    
    
    (516
    )
    
    
    
    
    
    
    (516
    )Commodity derivative basis swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate derivative swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (516
    )
    
    
    
    
    
    
    (516
    )Total 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
    
    
    
    
    
    
    
    
    
    
    61,157Total financial assets (liabilities)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    172,440
 21




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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 
 (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 June 30, 2009 and December 31, 2008: June 30,
    
    
    December 31,2009
    
    
    2008Consolidated Balance Sheet Classification:Current derivative contracts:Assets
    
    $
    26,272
    
    
    $
    113,149Liabilities
    
    
    (15,731
    )
    
    
    (1,866
    )Net current
        $
    10,541
    
    
    $
    111,283Noncurrent derivative contracts:Assets
    
    $
    31,438
    
    
    $
    61,157Liabilities
    
    
    (17,656
    )
    
    
    Net noncurrent
    
    $
    13,782
    
    
    $
    61,157
  (in thousands)Balance at December 31, 2008
    
    $
    49,562Realized and unrealized losses
    
    
    (9,686
    )Purchases, issuances, and settlements
    
    
    (24,118
    )Balance at June 30, 2009
    
    $
    15,758Total losses for the period included in
earnings attributable to the change in
unrealized losses relating to assets
still held at the reporting date
    
    $
    (33,804
    )
  Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Impairments of long-lived assets  Accounting for the
Impairment or Disposal of Long-Lived Assets
 22




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Asset Retirement Obligations 
  Fair value measurements usingQuoted
    
    Significantprices
    
    other
    
    Significantin active
    
    observable
    
    unobservable
    
    Totalmarkets
    
    inputs
    
    inputs
    
    Impairment(in thousands)
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    LossThree months ended June 30, 2009:Impairment of long-lived assets
    
    $
    
    
    
    $
    
    
    
    $
    2,733
    
    
    $
    (4,499
    )Asset retirement obligations
incurred in current period
    
    
    
    
    
    
    
    
    
    
    102Three months ended June 30, 2008:Impairment of long-lived assets
    
    $
    
    
    
    $
    
    
    
    $
    7
    
    
    $
    (53
    )Asset retirement obligations
incurred in current period
    
    
    
    
    
    
    
    
    
    
    275Six months ended June 30, 2009:Impairment of long-lived assets
    
    $
    
    
    
    $
    
    
    
    $
    5,620
    
    
    $
    (8,555
    )Asset retirement obligations
incurred in current period
    
    
    
    
    
    
    
    
    
    
    270Six months ended June 30, 2008:Impairment of long-lived assets
    
    $
    
    
    
    $
    
    
    
    $
    7
    
    
    $
    (69
    )Asset retirement obligations
incurred in current period
    
    
    
    
    
    
    
    
    
    
    309
 23




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Note I. Derivative financial instruments
   24




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 New commodity derivatives contracts in 2009.
 Aggregate
    
    Index
    
    ContractVolume
    
    Price
    
    PeriodOil (volumes in Bbls):Price collar
    
    
    600,000
    
    
    $
    45.00  $49.00
    (a)(d)
    
    3/1/09  5/31/09Price swap
    
    
    270,000
    
    
    $
    69.50
    (a)
    
    7/1/09  9/30/09Price swap
    
    
    540,000
    
    
    $
    51.62
    (a) (d)
    
    7/1/09  12/31/09Price swap
    
    
    150,000
    
    
    $
    69.50
    (a)
    
    10/1/09  12/31/09Price swap
    
    
    2,508,000
    
    
    $
    62.15
    (a) (d)
    
    1/1/10  12/31/10Price swap
    
    
    1,800,000
    
    
    $
    72.17
    (a) (d)
    
    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
    
    
    600,000
    
    
    $
    4.66
    (b)
    
    7/1/09  9/30/09Price swap
    
    
    450,000
    
    
    $
    4.66
    (b)
    
    10/1/09  12/31/09Price swap
    
    
    2,400,000
    
    
    $
    6.31
    (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) (d)
    
    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) (d)
    
    1/1/10  12/31/10Basis swap
    
    
    1,800,000
    
    
    $
    0.87
    (c) (d)
    
    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.(d)
    
    Prices represent weighted average prices. 25




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Aggregate
    
    Index
    
    ContractVolume
    
    Price
    
    PeriodOil (volumes in Bbls):Price swap
    
    
    273,000
    
    
    $
    67.50
    (a)
    
    8/1/09 - 12/31/09Price swap
    
    
    799,000
    
    
    $
    67.50
    (a)
    
    1/1/10 - 12/31/10Price swap
    
    
    801,000
    
    
    $
    70.53
    (a) (b)
    
    1/1/11 - 12/31/11
 
 (a)
    
    The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate monthly average futures price.(b)
    
    Prices represent weighted average prices. 26




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Commodity derivative contracts at June 30, 2009.
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    TotalOil Swaps:(a)2009:Volume (Bbl)
    
    
    
    
    
    
    
    
    
    
    995,473
    
    
    
    875,473
    
    
    
    1,870,946Price per Bbl(e)
    
    
    
    
    
    
    
    
    
    $
    72.71
    
    
    $
    73.15
    
    
    $
    72.922010:Volume (Bbl)
    
    
    787,436
    
    
    
    787,436
    
    
    
    787,436
    
    
    
    787,436
    
    
    
    3,149,744Price per Bbl(e)
    
    $
    68.49
    
    
    $
    68.49
    
    
    $
    68.49
    
    
    $
    68.49
    
    
    $
    68.492011:Volume (Bbl)
    
    
    589,436
    
    
    
    589,436
    
    
    
    589,436
    
    
    
    589,436
    
    
    
    2,357,744Price per Bbl(e)
    
    $
    79.91
    
    
    $
    79.91
    
    
    $
    79.91
    
    
    $
    79.91
    
    
    $
    79.912012:Volume (Bbl)
    
    
    126,000
    
    
    
    126,000
    
    
    
    126,000
    
    
    
    126,000
    
    
    
    504,000Price per Bbl
    
    $
    127.80
    
    
    $
    127.80
    
    
    $
    127.80
    
    
    $
    127.80
    
    
    $
    127.80Oil Collars:(a)2009:Volume (Bbl)
    
    
    
    
    
    
    
    
    
    
    192,000
    
    
    
    192,000
    
    
    
    384,000Price per Bbl
    
    
    
    
    
    
    
    
    
    $
    120.00 - $134.60
    
    
    $
    120.00 - $134.60
    
    
    $
    120.00 - $134.60Natural Gas Swaps:(b)2009:Volume (MMBtu)
    
    
    
    
    
    
    
    
    
    
    460,000
    
    
    
    460,000
    
    
    
    920,000Price per MMBtu
    
    
    
    
    
    
    
    
    
    $
    8.44
    
    
    $
    8.44
    
    
    $
    8.44Natural Gas Swaps:(c)2009:Volume (MMBtu)
    
    
    
    
    
    
    
    
    
    
    2,100,000
    
    
    
    450,000
    
    
    
    2,550,000Price per MMBtu
    
    
    
    
    
    
    
    
    
    $
    4.41
    
    
    $
    4.66
    
    
    $
    4.452010:Volume (MMBtu)
    
    
    600,000
    
    
    
    600,000
    
    
    
    600,000
    
    
    
    600,000
    
    
    
    2,400,000Price per MMBtu
    
    $
    6.31
    
    
    $
    6.31
    
    
    $
    6.31
    
    
    $
    6.31
    
    
    $
    6.312011: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:(c)2009:Volume (MMBtu)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000
    
    
    
    1,500,000Price per MMBtu
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5.00 - $5.81
    
    
    $
    5.00 - $5.812010: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 - $6.80
 27




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    TotalNatural Gas Basis Swaps:(d)2009:Volume (MMBtu)
    
    
    
    
    
    
    
    
    
    
    2,118,000
    
    
    
    1,968,000
    
    
    
    4,086,000Price per MMBtu (e)
    
    
    
    
    
    
    
    
    
    $
    0.99
    
    
    $
    1.03
    
    
    $
    1.012010:Volume (MMBtu)
    
    
    2,100,000
    
    
    
    2,100,000
    
    
    
    2,100,000
    
    
    
    2,100,000
    
    
    
    8,400,000Price per MMBtu (e)
    
    $
    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 (e)
    
    $
    0.87
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.79
 
 (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 price for the natural gas price swap is based on the Inside FERC-El Paso Permian
Basin first-of-the-month spot price.(c)
    
    The index prices for the natural gas price swaps and collars are based on the NYMEX-Henry Hub
last trading day futures price.(d)
    
    The basis differential between the El Paso Permian delivery point and NYMEX Henry Hub delivery
point.(e)
    
    Prices represent weighted average prices. Interest rate derivative contracts at June 30, 2009.
 28




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 :
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Decrease in oil and natural gas revenue from derivative activity:Cash payments on cash flow hedges in oil sales
    
    $
    
    
    
    $
    (13,367
    )
    
    $
    
    
    
    $
    (20,573
    )Dedesignated cash flow hedges reclassified from AOCI in natural gas sales
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    (222
    )Total decrease in oil and natural gas revenue from derivative activity
    
    $
    
    
    
    $
    (13,293
    )
    
    $
    
    
    
    $
    (20,795
    )Loss on derivatives not designated as hedges:Mark-to-market gain (loss):Commodity derivatives
    
    $
    (109,374
    )
    
    $
    (90,055
    )
    
    $
    (149,117
    )
    
    $
    (103,247
    )Interest rate derivatives
    
    
    3,427
    
    
    
    
    
    
    
    1,000
    
    
    
    Cash (payments) receipts on derivatives not designated as hedges:Commodity derivatives
    
    
    25,120
    
    
    
    (12,401
    )
    
    
    62,244
    
    
    
    (16,387
    )Interest rate derivatives
    
    
    (779
    )
    
    
    
    
    
    
    (779
    )
    
    
    Total loss on derivatives not designated as hedges
    
    $
    (81,606
    )
    
    $
    (102,456
    )
    
    $
    (86,652
    )
    
    $
    (119,634
    )Gain from ineffective portion of cash flow hedges
    
    $
    
    
    
    $
    356
    
    
    $
    
    
    
    $
    920Accumulated other comprehensive income (loss):Cash flow hedges:Mark-to-market loss of cash flow hedges
    
    $
    
    
    
    $
    (25,903
    )
    
    $
    
    
    
    $
    (32,510
    )Reclassification
adjustment of  losses to earnings
    
    
    
    
    
    
    13,367
    
    
    
    
    
    
    
    20,573Net change, before income taxes
    
    
    
    
    
    
    (12,536
    )
    
    
    
    
    
    
    (11,937
    )Income tax effect
    
    
    
    
    
    
    4,899
    
    
    
    
    
    
    
    4,665Net change, net of income taxes
    
    $
    
    
    
    $
    (7,637
    )
    
    $
    
    
    
    $
    (7,272
    )Dedesignated cash flow hedges:Reclassification adjustment of (gains) losses to earnings
    
    $
    
    
    
    $
    (74
    )
    
    $
    
    
    
    $
    222Income tax effect
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    (87
    )Net change, net of income taxes
    
    $
    
    
    
    $
    (45
    )
    
    $
    
    
    
    $
    135
 29




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Note J. Debt
  June 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Credit facility
    
    $
    660,000
    
    
    $
    630,000Less: current portion
    
    
    
    
    
    
    Total long-term debt
    
    $
    660,000
    
    
    $
    630,000
 Credit facility.
    30




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Principal maturities of debt.
 (in thousands)Remaining 2009
    
    $
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    660,000Total
    
    $
    660,000
 Interest expense.
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cash payments for interest
    
    $
    3,457
    
    
    $
    3,982
    
    
    $
    6,929
    
    
    $
    10,758Amortization of original issue discount
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    50Amortization of deferred loan origination costs
    
    
    857
    
    
    
    314
    
    
    
    1,713
    
    
    
    626Write-off of deferred loan origination costs
and original issue discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net changes in accruals
    
    
    1,889
    
    
    
    (71
    )
    
    
    1,946
    
    
    
    (1,094
    )Interest costs incurred
    
    
    6,203
    
    
    
    4,250
    
    
    
    10,588
    
    
    
    10,340Less: capitalized interest
    
    
    (3
    )
    
    
    (365
    )
    
    
    (18
    )
    
    
    (840
    )Total interest expense
    
    $
    6,200
    
    
    $
    3,885
    
    
    $
    10,570
    
    
    $
    9,500
 Note K. Commitments and contingencies
 Severance agreements.
 Indemnifications .
 Legal actions .
 Acquisition commitments .
 31




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Daywork commitments.
 Payments Due By PeriodLess than
    
    
    1 - 3
    
    
    3 - 5
    
    
    More than(in thousands)
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsDaywork drilling contracts
    
    $
    299
    
    
    $
    299
    
    
    $
    
    
    
    $
    
    
    
    $
    Daywork drilling contracts with related parties (a)
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    Daywork drilling contracts assumed in the Henry Properties acquisition (b)
    
    
    1,629
    
    
    
    1,629
    
    
    
    
    
    
    
    
    
    
    
    Total contractual drilling commitments
    
    $
    2,928
    
    
    $
    2,928
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (a)
    
    Consists of daywork drilling contracts with Silver Oak Drilling, LLC, an
affiliate of Chase Oil Corporation.(b)
    
    A major oil and 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)Remaining 2009
    
    $
    5232010
    
    
    1,0772011
    
    
    1,0832012
    
    
    1,0772013
    
    
    1,084Thereafter
    
    
    3,261Total
    
    $
    8,105
 Note L. Income taxes
 Accounting for Income Taxes
 Accounting for Uncertainty
in Income Taxes, Accounting for Income Taxes,
 32




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Definition of Settlement in FASB Interpretation No. 48
 Income tax provision.
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Income (loss) from operations
    
    $
    (25,691
    )
    
    $
    (9,169
    )
    
    $
    (33,797
    )
    
    $
    5,199Changes in stockholders equity:Net deferred hedge losses
    
    
    
    
    
    
    (10,123
    )
    
    
    
    
    
    
    (12,705
    )Net settlement losses included in earnings
    
    
    
    
    
    
    5,195
    
    
    
    
    
    
    
    8,127Tax benefits related to stock-based compensation
    
    
    (2,188
    )
    
    
    (1,553
    )
    
    
    (2,992
    )
    
    
    (2,146
    )$
    (27,879
    )
    
    $
    (15,650
    )
    
    $
    (36,789
    )
    
    $
    (1,525
    )
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Current:U.S. federal
    
    $
    2,856
    
    
    $
    523
    
    
    $
    5,294
    
    
    $
    585U.S. state and local
    
    
    381
    
    
    
    98
    
    
    
    708
    
    
    
    1103,237
    
    
    
    621
    
    
    
    6,002
    
    
    
    695Deferred:U.S. federal
    
    
    (25,518
    )
    
    
    (8,201
    )
    
    
    (35,103
    )
    
    
    3,790U.S. state and local
    
    
    (3,410
    )
    
    
    (1,589
    )
    
    
    (4,696
    )
    
    
    714(28,928
    )
    
    
    (9,790
    )
    
    
    (39,799
    )
    
    
    4,504$
    (25,691
    )
    
    $
    (9,169
    )
    
    $
    (33,797
    )
    
    $
    5,199
 33




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Income (loss) at U.S. federal statutory rate
    
    $
    (20,618
    )
    
    $
    (8,256
    )
    
    $
    (28,084
    )
    
    $
    4,600State income taxes (net of federal tax effect)
    
    
    (1,969
    )
    
    
    (968
    )
    
    
    (2,592
    )
    
    
    537Nondeductible expense & other
    
    
    (3,104
    )
    
    
    55
    
    
    
    (3,121
    )
    
    
    62Income tax expense (benefit)
    
    $
    (25,691
    )
    
    $
    (9,169
    )
    
    $
    (33,797
    )
    
    $
    5,199
 Note M. Related party transactions
 Consulting Agreement.
 Chase Group transactions.
  Saltwater disposal services agreement.
 Other related party transactions.
  34




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Overriding royalty and royalty interests.
   Working interests owned by employees.
 Note N. Net income (loss) per share
   35




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
  Three Months Ended June 30,
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    2008
    
    2009
    
    2008Weighted average common shares outstanding:Basic
    
    
    84,799
    
    
    
    75,665
    
    
    
    84,665
    
    
    
    75,569Dilutive capital options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Dilutive common stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,206Dilutive restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    247Diluted
    
    
    84,799
    
    
    
    75,665
    
    
    
    84,665
    
    
    
    77,034
   Note O. Other current liabilities
  June 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Other current liabilities:Accrued production costs
    
    $
    18,229
    
    
    $
    15,489Payroll related matters
    
    
    11,843
    
    
    
    11,290Accrued interest
    
    
    2,299
    
    
    
    353Asset retirement obligations
    
    
    2,706
    
    
    
    2,611Other
    
    
    3,072
    
    
    
    8,314Other current liabilities
    
    $
    38,149
    
    
    $
    38,057
 Note P. Subsequent events
  36




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited
 Note Q. Supplementary information
 Capitalized costs
 June 30,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Oil and natural gas properties:Proved
    
    $
    2,608,138
    
    
    $
    2,316,330Unproved
    
    
    277,137
    
    
    
    377,244Less: accumulated depletion
    
    
    (413,252
    )
    
    
    (306,990
    )Net capitalized costs for oil and natural gas properties
    
    $
    2,472,023
    
    
    $
    2,386,584
 Costs incurred for oil and natural gas producing activities (a)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Property acquisition costs:(b)Proved
    
    $
    (68
    )
    
    $
    (104
    )
    
    $
    (1,008
    )
    
    $
    1Unproved
    
    
    3,361
    
    
    
    587
    
    
    
    4,582
    
    
    
    1,349Exploration
    
    
    61,131
    
    
    
    21,136
    
    
    
    84,940
    
    
    
    50,701Development
    
    
    31,450
    
    
    
    46,365
    
    
    
    115,229
    
    
    
    71,242Total costs incurred for oil and natural gas properties
    
    $
    95,874
    
    
    $
    67,984
    
    
    $
    203,743
    
    
    $
    123,293
 
 (a)
    
    The costs incurred for oil and natural gas producing activities includes the following
amounts of asset retirement obligations: Three Months Ended June 30,
    
    
    Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Proved property acquisition costs
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Exploration costs
    
    
    52
    
    
    
    168
    
    
    
    220
    
    
    
    194Development costs
    
    
    (3,878
    )
    
    
    1,245
    
    
    
    (2,727
    )
    
    
    443Total
    
    $
    (3,826
    )
    
    $
    1,413
    
    
    $
    (2,507
    )
    
    $
    637
 (b)
    
    During the three and six months ended June 30, 2009, the Company adjusted the purchase price
allocation related to the acquisition of the Henry Properties. This adjustment reduced the
proved acquisition costs by $80,000 and $1,020,000 during the three and six months ended June
30, 2009, respectively, while the unproved acquisition costs were decreased by $298,000 and
increased by $293,000 during the three and six months ended June 30, 2009, respectively.
 37




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    Overview
  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.
  38




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Average NYMEX prices:Oil (Bbl)
    
    $
    59.83
    
    
    $
    124.28
    
    
    $
    51.61
    
    
    $
    110.98Natural gas (MMBtu)
    
    $
    3.80
    
    
    $
    11.48
    
    
    $
    4.15
    
    
    $
    10.10High / Low NYMEX prices:Oil (Bbl):High
    
    $
    72.68
    
    
    $
    140.21
    
    
    $
    72.68
    
    
    $
    140.21Low
    
    $
    45.88
    
    
    $
    100.98
    
    
    $
    33.98
    
    
    $
    86.99Natural gas (MMBtu):High
    
    $
    4.45
    
    
    $
    13.35
    
    
    $
    6.07
    
    
    $
    13.35Low
    
    $
    3.25
    
    
    $
    9.32
    
    
    $
    3.25
    
    
    $
    7.48
  Henry Entities acquisition
  2009 capital budget
  2009(in millions)
    
    BudgetDrilling and recompletion opportunities in our core operating area
    
    $
    398Projects operated by third parties
    
    
    8Emerging plays, acquisition of leasehold acreage and other property interests, and geological and geophysical
    
    
    72Maintenance capital in our core operating areas
    
    
    22Total 2009 capital budget
    
    $
    500
  39




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##### Table of Contents



Reaffirmed borrowing base
  Derivative financial instrument exposure
   40




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##### Table of Contents



New commodity derivative contracts.
 Aggregate
    
    Index
    
    ContractVolume
    
    Price
    
    PeriodOil (volumes in Bbls):Price collar
    
    
    600,000
    
    
    $
    45.00  $49.00
    (a) (d)
    
    3/1/09  5/31/09Price swap
    
    
    270,000
    
    
    $
    69.50
    (a)
    
    7/1/09  9/30/09Price swap
    
    
    540,000
    
    
    $
    51.62
    (a) (d)
    
    7/1/09  12/31/09Price swap
    
    
    150,000
    
    
    $
    69.50
    (a)
    
    10/1/09  12/31/09Price swap
    
    
    2,508,000
    
    
    $
    62.15
    (a) (d)
    
    1/1/10  12/31/10Price swap
    
    
    1,800,000
    
    
    $
    72.17
    (a) (d)
    
    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
    
    
    600,000
    
    
    $
    4.66
    (b)
    
    7/1/09  9/30/09Price swap
    
    
    450,000
    
    
    $
    4.66
    (b)
    
    10/1/09  12/31/09Price swap
    
    
    2,400,000
    
    
    $
    6.31
    (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) (d)
    
    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) (d)
    
    1/1/10  12/31/10Basis swap
    
    
    1,800,000
    
    
    $
    0.87
    (c) (d)
    
    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.(d)
    
    Prices represent weighted average prices. 41




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##### Table of Contents



Aggregate
    
    Index
    
    ContractVolume
    
    Price
    
    PeriodOil (volumes in Bbls):Price swap
    
    
    273,000
    
    
    $
    67.50
    (a)
    
    8/1/09 - 12/31/09Price swap
    
    
    799,000
    
    
    $
    67.50
    (a)
    
    1/1/10 - 12/31/10Price swap
    
    
    801,000
    
    
    $
    70.53
    (a) (b)
    
    1/1/11 - 12/31/11
 
 (a)
    
    The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate monthly average futures price.(b)
    
    Prices represent weighted average prices. 42




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##### Table of Contents



Results of Operations
  Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Net production volumes:Oil (MBbl)
    
    
    1,831
    
    
    
    899
    
    
    
    3,518
    
    
    
    1,786Natural gas (MMcf)
    
    
    5,414
    
    
    
    3,346
    
    
    
    10,369
    
    
    
    6,451Total (MBoe)
    
    
    2,733
    
    
    
    1,457
    
    
    
    5,246
    
    
    
    2,861Average daily production volumes:Oil (Bbl)
    
    
    20,121
    
    
    
    9,879
    
    
    
    19,436
    
    
    
    9,813Natural gas (Mcf)
    
    
    59,495
    
    
    
    36,769
    
    
    
    57,287
    
    
    
    35,445Total (Boe)
    
    
    30,037
    
    
    
    16,007
    
    
    
    28,984
    
    
    
    15,721Average prices:Oil, without hedges (Bbl)
    
    $
    55.44
    
    
    $
    121.00
    
    
    $
    47.32
    
    
    $
    107.39Oil, with hedges(a) (Bbl)
    
    $
    55.44
    
    
    $
    106.13
    
    
    $
    47.32
    
    
    $
    95.87Natural gas, without hedges (Mcf)
    
    $
    4.77
    
    
    $
    12.52
    
    
    $
    4.52
    
    
    $
    11.33Natural gas, with hedges(a) (Mcf)
    
    $
    4.77
    
    
    $
    12.54
    
    
    $
    4.52
    
    
    $
    11.30Total, without hedges (Boe)
    
    $
    46.59
    
    
    $
    103.42
    
    
    $
    40.67
    
    
    $
    92.59Total, with hedges(a) (Boe)
    
    $
    46.59
    
    
    $
    94.29
    
    
    $
    40.67
    
    
    $
    85.32
 
 (a)
    
    These prices do not reflect the cash receipts/payments related to the oil and natural gas
derivatives that were not designated as hedges and are reflected in loss on derivatives not
designated as hedges in our statements of operations. If the cash receipts/payments related
to the oil and natural gas derivatives that were not designated as hedges were included in our
oil and natural gas sales our oil and natural gas prices would be as follows: Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Oil (Bbl)
    
    $
    67.36
    
    
    $
    92.86
    
    
    $
    63.36
    
    
    $
    86.93Natural gas (Mcf)
    
    $
    5.38
    
    
    $
    12.40
    
    
    $
    5.08
    
    
    $
    11.23Total (Boe)
    
    $
    55.78
    
    
    $
    85.78
    
    
    $
    52.53
    
    
    $
    79.59
  43




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##### Table of Contents



Three months ended June 30, 2009, compared to three months ended June 30, 2008
 Oil and natural gas revenues.
 
    
    average realized oil price (after giving effect to hedging activities) was $55.44 per
Bbl during the three months ended June 30, 2009, a decrease of 48 percent from $106.13
per Bbl during the three months ended June 30, 2008;
    
    total oil production was 1,831 MBbl for the three months ended June 30, 2009, an
increase of 932 MBbl (104 percent) from 899 MBbl for the three months ended June 30,
2008;
    
    average realized natural gas price (after giving effect to hedging activities) was
$4.77 per Mcf during the three months ended June 30, 2009, a decrease of 62 percent from
$12.54 per Mcf during the three months ended June 30, 2008;
    
    total natural gas production was 5,414 MMcf for the three months ended June 30, 2009,
an increase of 2,068 MMcf (62 percent) from 3,346 MMcf for the three months ended
June 30, 2008;
    
    average realized barrel of oil equivalent price (after giving effect to hedging
activities) was $46.59 per Boe during the three months ended June 30, 2009, a decrease
of 51 percent from $94.29 per Boe during the three months ended June 30, 2008; and
    
    total production was 2,733 MBoe for the three months ended June 30, 2009, an increase
of 1,276 MBoe (88 percent) from 1,457 MBoe for the three months ended June 30, 2008.
 Hedging activities.
   Oil Hedges
    
    Natural Gas HedgesThree Months Ended
    
    Three Months EndedJune 30, 2008
    
    June 30, 2008Hedging revenue increase (decrease) (in thousands)
    
    
    
    
    
    $
    (13,367
    )
    
    
    
    
    
    $
    74Hedged volumes (Bbls and MMBtus, respectively)
    
    
    
    
    
    
    236,000
    
    
    
    
    
    
    
    1,228,000Hedged revenue increase (decrease) per hedged volume
    
    
    
    
    
    $
    (56.64
    )
    
    
    
    
    
    $
    0.06
 44




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##### Table of Contents



Production expenses.
 Three Months Ended June 30,2009
    
    
    2008Per
    
    
    
    
    
    
    Per(in thousands, except per unit amounts)
    
    Amount
    
    
    Boe
    
    
    Amount
    
    
    BoeLease operating expenses
    
    $
    15,726
    
    
    $
    5.75
    
    
    $
    9,296
    
    
    $
    6.38Taxes:Ad valorem
    
    
    989
    
    
    
    0.36
    
    
    
    518
    
    
    
    0.36Production
    
    
    9,090
    
    
    
    3.33
    
    
    
    12,030
    
    
    
    8.26Workover costs
    
    
    12
    
    
    
    
    
    
    
    135
    
    
    
    0.09Total oil and gas production expenses
    
    $
    25,817
    
    
    $
    9.44
    
    
    $
    21,979
    
    
    $
    15.09
       Exploration and abandonments expense.
 Three Months Ended June 30,(in thousands)
    
    2009
    
    
    2008Geological and geophysical
    
    $
    448
    
    
    $
    424Exploratory dry holes
    
    
    445
    
    
    
    (19
    )Leasehold abandonments and other
    
    
    531
    
    
    
    318Total exploration and abandonments
    
    $
    1,424
    
    
    $
    723
 45




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##### Table of Contents



.
 Depreciation, depletion and amortization expense.
 Three Months Ended June 30,2009
    
    
    2008Per
    
    
    
    
    
    
    Per(in thousands, except per unit amounts)
    
    Amount
    
    
    Boe
    
    
    Amount
    
    
    BoeDepletion of proved oil and natural gas properties
    
    $
    51,218
    
    
    $
    18.74
    
    
    $
    21,584
    
    
    $
    14.81Depreciation of other property and equipment
    
    
    796
    
    
    
    0.29
    
    
    
    426
    
    
    
    0.29Amortization of intangible asset  operating rights
    
    
    388
    
    
    
    0.14
    
    
    
    
    
    
    
    Total depletion, depreciation and amortization
    
    $
    52,402
    
    
    $
    19.17
    
    
    $
    22,010
    
    
    $
    15.10Crude oil price used to estimate proved oil reserves at period end
    
    $
    66.25
    
    
    
    
    
    
    $
    136.50Natural gas price used to estimate proved gas reserves at period end
    
    $
    3.72
    
    
    
    
    
    
    $
    13.10
   Impairment of long-lived assets.
 46




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##### Table of Contents



General and administrative expenses.
 Three Months Ended June 30,2009
    
    
    2008Per
    
    
    
    
    
    
    Per(in thousands, except per unit amounts)
    
    Amount
    
    
    Boe
    
    
    Amount
    
    
    BoeGeneral and administrative expenses  recurring
    
    $
    12,025
    
    
    $
    4.40
    
    
    $
    7,121
    
    
    $
    4.89Non-recurring bonus paid to former Henry Entities employees
    
    
    2,750
    
    
    
    1.01
    
    
    
    
    
    
    
    Non-cash stock-based compensation  stock options
    
    
    885
    
    
    
    0.32
    
    
    
    1,262
    
    
    
    0.87Non-cash stock-based compensation  restricted stock
    
    
    1,303
    
    
    
    0.48
    
    
    
    468
    
    
    
    0.32Less: Third-party operating fee reimbursements
    
    
    (2,791
    )
    
    
    (1.02
    )
    
    
    (265
    )
    
    
    (0.18
    )Total general and administrative expenses
    
    $
    14,172
    
    
    $
    5.19
    
    
    $
    8,586
    
    
    $
    5.90
    Bad debt expense.
 Loss on derivatives not designated as hedges.
 47




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##### Table of Contents



Three Months Ended June 30,(in thousands)
    
    2009
    
    
    2008Cash payments (receipts):Commodity derivatives  oil
    
    $
    (21,828
    )
    
    $
    11,929Commodity derivatives  natural gas
    
    
    (3,292
    )
    
    
    472Financial derivatives  interest
    
    
    779
    
    
    
    Mark-to-market (gain) loss:Commodity derivatives  oil
    
    
    105,062
    
    
    
    82,951Commodity derivatives  natural gas
    
    
    4,312
    
    
    
    7,104Financial derivatives  interest
    
    
    (3,427
    )
    
    
    Loss on derivatives not designated as hedges
    
    $
    81,606
    
    
    $
    102,456
 Interest expense.
  Income tax provisions.
 Six months ended June 30, 2009, compared to six months ended June 30, 2008
 Oil and natural gas revenues.
 
    
    average realized oil price (after giving effect to hedging activities) was $47.32 per
Bbl during the six months ended June 30, 2009, a decrease of 51 percent from $95.87 per
Bbl during the six months ended June 30, 2008;
    
    total oil production was 3,518 MBbl for the six months ended June 30, 2009, an
increase of 1,732 MBbl (97 percent) from 1,786 MBbl for the six months ended June 30,
2008;
    
    average realized natural gas price (after giving effect to hedging activities) was
$4.52 per Mcf during the six months ended June 30, 2009, a decrease of 60 percent from
$11.30 per Mcf during the six months ended June 30, 2008;
    
    total natural gas production was 10,369 MMcf for the six months ended June 30, 2009,
an increase of 3,918 MMcf (61 percent) from 6,451 MMcf for the six months ended June 30,
2008;
    
    average realized barrel of oil equivalent price (after giving effect to hedging
activities) was $40.67 per Boe during the six months ended June 30, 2009, a decrease of
52 percent from $85.32 per Boe during the six months ended June 30, 2008; and
 48




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##### Table of Contents




    
    total production was 5,246 MBoe for the six months ended June 30, 2009, an increase
of 2,385 MBoe (83 percent) from 2,861 MBoe for the six months ended June 30, 2008.
 Hedging activities.
   Oil Hedges
    
    
    Natural Gas HedgesSix Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2008Hedging revenue increase (decrease) (in thousands)
    
    $
    (20,573
    )
    
    $
    (222
    )Hedged volumes (Bbls and MMBtus, respectively)
    
    
    473,000
    
    
    
    2,457,000Hedged revenue increase (decrease) per hedged volume
    
    $
    (43.49
    )
    
    $
    (0.09
    )
 Production expenses.
 Six Months Ended June 30,2009
    
    
    2008Per
    
    
    
    
    
    
    Per(in thousands, except per unit amounts)
    
    Amount
    
    
    Boe
    
    
    Amount
    
    
    BoeLease operating expenses
    
    $
    32,294
    
    
    $
    6.16
    
    
    $
    16,238
    
    
    $
    5.68Taxes:Ad valorem
    
    
    2,491
    
    
    
    0.47
    
    
    
    1,006
    
    
    
    0.35Production
    
    
    15,365
    
    
    
    2.93
    
    
    
    21,108
    
    
    
    7.38Workover costs
    
    
    433
    
    
    
    0.08
    
    
    
    522
    
    
    
    0.18Total oil and gas production expenses
    
    $
    50,583
    
    
    $
    9.64
    
    
    $
    38,874
    
    
    $
    13.59
     49




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##### Table of Contents



Exploration and abandonments expense.
 Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008Geological and geophysical
    
    $
    1,125
    
    
    $
    2,317Exploratory dry holes
    
    
    1,866
    
    
    
    (1
    )Leasehold abandonments and other
    
    
    4,428
    
    
    
    1,148Total exploration and abandonments
    
    $
    7,419
    
    
    $
    3,464
   .
 Depreciation, depletion and amortization expense.
 Six Months Ended June 30,2009
    
    
    2008Per
    
    
    
    
    
    
    Per(in thousands, except per unit amounts)
    
    Amount
    
    
    Boe
    
    
    Amount
    
    
    BoeDepletion of proved oil and natural gas properties
    
    $
    100,995
    
    
    $
    19.25
    
    
    $
    42,510
    
    
    $
    14.86Depreciation of other property and equipment
    
    
    1,374
    
    
    
    0.26
    
    
    
    784
    
    
    
    0.27Amortization of intangible asset  operating rights
    
    
    781
    
    
    
    0.15
    
    
    
    
    
    
    
    Total depletion, depreciation and amortization
    
    $
    103,150
    
    
    $
    19.66
    
    
    $
    43,294
    
    
    $
    15.13Crude oil price used to estimate proved oil reserves at period end
    
    $
    66.25
    
    
    
    
    
    
    $
    136.50Natural gas price used to estimate proved gas reserves at period end
    
    $
    3.72
    
    
    
    
    
    
    $
    13.10
  50




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Impairment of long-lived assets.
 General and administrative expenses.
 Six Months Ended June 30,2009
    
    
    2008Per
    
    
    
    
    
    
    Per(in thousands, except per unit amounts)
    
    Amount
    
    
    Boe
    
    
    Amount
    
    
    BoeGeneral and administrative expenses  recurring
    
    $
    21,939
    
    
    $
    4.18
    
    
    $
    13,741
    
    
    $
    4.80Non-recurring bonus paid to former Henry Entities employees
    
    
    5,311
    
    
    
    1.01
    
    
    
    
    
    
    
    Non-cash stock-based compensation  stock options
    
    
    1,913
    
    
    
    0.36
    
    
    
    2,167
    
    
    
    0.76Non-cash stock-based compensation  restricted stock
    
    
    2,200
    
    
    
    0.42
    
    
    
    862
    
    
    
    0.30Less: Third-party operating fee reimbursements
    
    
    (5,445
    )
    
    
    (1.04
    )
    
    
    (504
    )
    
    
    (0.17
    )Total general and administrative expenses
    
    $
    25,918
    
    
    $
    4.93
    
    
    $
    16,266
    
    
    $
    5.69
    Bad debt expense.
 Loss on derivatives not designated as hedges.
 51




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##### Table of Contents



Six Months Ended June 30,(in thousands)
    
    2009
    
    
    2008Cash payments (receipts):Commodity derivatives  oil
    
    $
    (56,412
    )
    
    $
    15,965Commodity derivatives  natural gas
    
    
    (5,832
    )
    
    
    422Financial derivatives  interest
    
    
    779
    
    
    
    Mark-to-market (gain) loss:Commodity derivatives  oil
    
    
    144,099
    
    
    
    88,900Commodity derivatives  natural gas
    
    
    5,018
    
    
    
    14,347Financial derivatives  interest
    
    
    (1,000
    )
    
    
    Loss on derivatives not designated as hedges
    
    $
    86,652
    
    
    $
    119,634
 Interest expense.
  Income tax provisions.
 Capital Commitments, Capital Resources and Liquidity
 Capital commitments.
 Oil and natural gas properties.
  52




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Acquisitions.
 Contractual obligations.
 Off-balance sheet arrangements.
 Capital resources.
 Cash flow from operating activities.
 Cash flow used in investing activities.
 Cash flow from financing activities.
  53




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##### Table of Contents



Financial markets.
     Liquidity.
  Book capitalization and current ratio.
 Inflation and changes in prices.
 54




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##### Table of Contents



Critical Accounting Policies, Practices and Estimates
    Recent Accounting Pronouncements and Developments
 Recent accounting pronouncements. Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities ,
 Determination of
the Useful Life of Intangible Assets
 55




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##### Table of Contents



Goodwill and Other Intangible
Assets
 The Hierarchy of Generally Accepted Accounting
Principles The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities
 Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies.
 Interim
Disclosures about Fair Value of Financial Instrument Disclosures about Fair Value of Financial Instruments, Interim Financial Reporting,
 Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly
 
    
    Affirms that the objective of fair value when the market for an asset is not active
is the price that would be received to sell the asset in an orderly transaction;
    
    Clarifies and includes additional factors for determining whether there has been a
significant decrease in market activity for an asset when the market for that asset is
not active;
    
    Eliminates the proposed presumption that all transactions are distressed (not
orderly) unless proven otherwise. The FSP instead requires an entity to base its
conclusion about whether a transaction was not orderly on the weight of the evidence;
    
    Includes an example that provides additional explanation on estimating fair value
when the market activity for an asset has declined significantly;
 56




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##### Table of Contents




    
    Requires an entity to disclose a change in valuation technique (and the related
inputs) resulting from the application of the FSP and to quantify its effects, if
practicable; and
    
    Applies to all fair value measurements when appropriate.
  Subsequent Events
 
    
    The period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements;
    
    The circumstances under which a reporting entity should recognize events or
transactions occurring after the balance sheet date in its financial statements; and
    
    The disclosures that a reporting entity should make about events or transactions that
occurred after the balance sheet date.
  Accounting for Transfers of Financial Assets , Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities
 Recent developments in reserves reporting. Modernization of Oil and Gas Reporting
 57




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
    Credit risk.
 Commodity price risk.
  Interest rate risk.
 58




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##### Table of Contents



Derivative Instruments Net Assets (Liabilities) (a)(in thousands)
    
    Commodities
    
    
    Interest Rate
    
    
    TotalFair value of contracts outstanding at December 31, 2008
    
    $
    173,523
    
    
    $
    (1,083
    )
    
    $
    172,440Changes in fair values (b)
    
    
    (86,873
    )
    
    
    221
    
    
    
    (86,652
    )Contract maturities
    
    
    (62,244
    )
    
    
    779
    
    
    
    (61,465
    )Fair value of contracts outstanding at June 30, 2009
    
    $
    24,406
    
    
    $
    (83
    )
    
    $
    24,323
 
 (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. 59




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Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
 60




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Certain federal income tax deductions currently available with respect to oil and 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.
   61




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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.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 Total number
    
    
    Maximumof shares
    
    
    number ofpurchased as
    
    
    shares thatTotal number
    
    
    
    
    
    
    part of publicly
    
    
    may yet beof shares
    
    
    Average price
    
    
    announced
    
    
    purchasedPeriod
    
    withheld (1)
    
    
    per share
    
    
    plans
    
    
    under the planApril 1, 2009 - April 30, 2009
    
    
    
    
    
    $
    
    
    
    
    May 1, 2009 - May 31, 2009
    
    
    
    
    
    $
    
    
    
    
    June 1, 2009 - June 30, 2009
    
    
    6,199
    
    
    $
    31.14
    
    
    
    
 
 (1)
    
    Represents shares that were withheld by the Company to satisfy tax withholding obligations of certain executive officers that
arose upon the lapse of restrictions on restricted stock. 62




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
    Nominee
    
    Shares for
    
    Shares 
withheldSteven L. Beal
    
    
    75,380,942
    
    
    
    529,097Tucker S. Bridwell
    
    
    74,692,704
    
    
    
    1,217,335
  
 Item 6. Exhibits
 Exhibit Number
    
    Exhibit4.1
    
    First Amendment to Amended and Restated Credit Agreement dated as of April 7, 2009, with the
lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 4.1
to the Companys Current Report on Form 8-K on April 9, 2009, and incorporated herein by
reference).10.1
    
    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).31.1 (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. 63




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##### Table of Contents



SIGNATURES
  CONCHO RESOURCES INC.Date: August 6, 2009
    By
 
    /s/ Timothy A. LeachTimothy A. LeachDirector, Chairman of the Board of Directors,

Chief Executive Officer, and President
(Principal Executive Officer)By
 
    /s/ Darin G. HoldernessDarin G. HoldernessVice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 64




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Exhibit4.1
    
    First Amendment to Amended and Restated Credit Agreement dated as of April 7, 2009, with the
lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 4.1
to the Companys Current Report on Form 8-K on April 9, 2009, and incorporated herein by
reference).10.1
    
    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).31.1 (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.