##### 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 March 31, 2010
 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  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 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
    
    
    37Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    50Item 4.Controls and Procedures
    
    
    51PART II  OTHER INFORMATION
    
    
    52Item 1.Legal Proceedings
    
    
    52Item 1A.Risk Factors
    
    
    52Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 6.Exhibits
    
    
    53EX-31.1EX-31.2EX-32.1EX-32.2
  i




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




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PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    Consolidated Financial Statements (Unaudited)
 Consolidated Balance Sheets at March 31, 2010 and December 31, 2009
    
    
    1Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009
    
    
    2Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2010
    
    
    3Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009
    
    
    4Condensed Notes to Consolidated Financial Statements
    
    
    5




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Concho Resources Inc.
 
 Consolidated Balance Sheets
 Unaudited
 March 31,
    
    
    December 31,(in thousands, except share and per share data)
    
    2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    6,988
    
    
    $
    3,234Accounts receivable, net of allowance for doubtful accounts:Oil and natural gas
    
    
    94,886
    
    
    
    69,199Joint operations and other
    
    
    86,356
    
    
    
    100,120Related parties
    
    
    407
    
    
    
    216Derivative instruments
    
    
    9,078
    
    
    
    1,309Deferred income taxes
    
    
    18,316
    
    
    
    29,284Prepaid costs and other
    
    
    9,785
    
    
    
    13,896Total current assets
    
    
    225,816
    
    
    
    217,258Property and equipment, at cost:Oil and natural gas properties, successful efforts method
    
    
    3,508,322
    
    
    
    3,358,004Accumulated depletion and depreciation
    
    
    (572,562
    )
    
    
    (517,421
    )Total oil and natural gas properties, net
    
    
    2,935,760
    
    
    
    2,840,583Other property and equipment, net
    
    
    15,976
    
    
    
    15,706Total property and equipment, net
    
    
    2,951,736
    
    
    
    2,856,289Deferred loan costs, net
    
    
    19,636
    
    
    
    20,676Inventory
    
    
    19,758
    
    
    
    16,255Intangible asset, net  operating rights
    
    
    36,135
    
    
    
    36,522Noncurrent derivative instruments
    
    
    26,979
    
    
    
    23,614Other assets
    
    
    473
    
    
    
    471Total assets
    
    $
    3,280,533
    
    
    $
    3,171,085Liabilities and Stockholders EquityCurrent liabilities:Accounts payable:Trade
    
    $
    5,702
    
    
    $
    15,443Related parties
    
    
    348
    
    
    
    291Other current liabilities:Bank overdrafts
    
    
    
    
    
    
    3,415Revenue payable
    
    
    39,169
    
    
    
    31,069Accrued and prepaid drilling costs
    
    
    192,540
    
    
    
    164,282Derivative instruments
    
    
    55,329
    
    
    
    62,419Other current liabilities
    
    
    73,478
    
    
    
    60,095Total current liabilities
    
    
    366,566
    
    
    
    337,014Long-term debt
    
    
    625,928
    
    
    
    845,836Noncurrent derivative instruments
    
    
    21,148
    
    
    
    29,337Deferred income taxes
    
    
    616,649
    
    
    
    603,286Asset retirement obligations and other long-term liabilities
    
    
    19,205
    
    
    
    20,184Commitments and contingencies (Note K)Stockholders equity:Common stock, $0.001 par value; 300,000,000 authorized; 91,555,423 and 85,815,926
shares issued at March 31, 2010 and December 31, 2009, respectively
    
    
    92
    
    
    
    86Additional paid-in capital
    
    
    1,257,674
    
    
    
    1,029,392Retained earnings
    
    
    373,907
    
    
    
    306,367Treasury stock, at cost; 17,059 and 12,380 shares at March 31, 2010 and December 31, 2009,
respectively
    
    
    (636
    )
    
    
    (417
    )Total stockholders equity
    
    
    1,631,037
    
    
    
    1,335,428Total liabilities and stockholders equity
    
    $
    3,280,533
    
    
    $
    3,171,085
 The accompanying notes are an integral part of these consolidated financial statements.
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Concho Resources Inc.
 
 Consolidated Statements of Operations
 Unaudited
 Three Months Ended March 31,(in thousands, except per share amounts)
    
    2010
    
    2009Operating revenues:Oil sales
    
    $
    162,725
    
    
    $
    64,974Natural gas sales
    
    
    49,275
    
    
    
    21,028Total operating revenues
    
    
    212,000
    
    
    
    86,002Operating costs and expenses:Oil and natural gas production
    
    
    36,700
    
    
    
    24,766Exploration and abandonments
    
    
    1,295
    
    
    
    5,995Depreciation, depletion and amortization
    
    
    53,843
    
    
    
    50,748Accretion of discount on asset retirement obligations
    
    
    400
    
    
    
    278Impairments of long-lived assets
    
    
    2,620
    
    
    
    4,056General and administrative (including non-cash stock-based
compensation of $2,831 and $1,925 for the three months ended
March 31, 2010 and 2009, respectively)
    
    
    13,558
    
    
    
    11,746Bad debt expense
    
    
    539
    
    
    
    (Gain) loss on derivatives not designated as hedges
    
    
    (15,573
    )
    
    
    5,046Total operating costs and expenses
    
    
    93,382
    
    
    
    102,635Income (loss) from operations
    
    
    118,618
    
    
    
    (16,633
    )Other income (expense):Interest expense
    
    
    (11,065
    )
    
    
    (4,370
    )Other, net
    
    
    (73
    )
    
    
    (328
    )Total other expense
    
    
    (11,138
    )
    
    
    (4,698
    )Income (loss) before income taxes
    
    
    107,480
    
    
    
    (21,331
    )Income tax benefit (expense)
    
    
    (39,940
    )
    
    
    8,106Net income (loss)
    
    $
    67,540
    
    
    $
    (13,225
    )Basic earnings per share:Net income (loss) per share
    
    $
    0.76
    
    
    $
    (0.16
    )Weighted average shares used in basic earnings per share
    
    
    88,831
    
    
    
    84,529Diluted earnings per share:Net income (loss) per share
    
    $
    0.75
    
    
    $
    (0.16
    )Weighted average shares used in diluted earnings per share
    
    
    90,130
    
    
    
    84,529
 The accompanying notes are an integral part of these consolidated financial statements.
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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, 2009
    
    
    85,816
    
    
    $
    86
    
    
    $
    1,029,392
    
    
    $
    306,367
    
    
    
    12
    
    
    $
    (417
    )
    
    $
    1,335,428Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,540
    
    
    
    
    
    
    
    
    
    
    
    67,540Issuance of common stock
    
    
    5,348
    
    
    
    5
    
    
    
    219,456
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219,461Stock options exercised
    
    
    248
    
    
    
    1
    
    
    
    2,497
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,498Stock-based compensation for restricted stock
    
    
    145
    
    
    
    
    
    
    
    1,822
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,822Cancellation of restricted stock
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation for stock options
    
    
    
    
    
    
    
    
    
    
    1,009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,009Excess tax benefits related to stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,498Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    (219
    )
    
    
    (219
    )BALANCE AT MARCH 31, 2010
    
    
    91,555
    
    
    $
    92
    
    
    $
    1,257,674
    
    
    $
    373,907
    
    
    
    17
    
    
    $
    (636
    )
    
    $
    1,631,037
 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
 Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    67,540
    
    
    $
    (13,225
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation, depletion and amortization
    
    
    53,843
    
    
    
    50,748Impairments of long-lived assets
    
    
    2,620
    
    
    
    4,056Accretion of discount on asset retirement obligations
    
    
    400
    
    
    
    278Exploration and abandonments, including dry holes
    
    
    627
    
    
    
    5,318Non-cash compensation expense
    
    
    2,831
    
    
    
    1,925Bad debt expense
    
    
    539
    
    
    
    Deferred income taxes
    
    
    27,829
    
    
    
    (10,871
    )(Gain) loss on sale of assets
    
    
    (17
    )
    
    
    243(Gain) loss on derivatives not designated as hedges
    
    
    (15,573
    )
    
    
    5,046Other non-cash items
    
    
    1,140
    
    
    
    813Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (15,963
    )
    
    
    (31,744
    )Prepaid costs and other
    
    
    5,372
    
    
    
    1,581Inventory
    
    
    (3,508
    )
    
    
    (2,371
    )Accounts payable
    
    
    (9,752
    )
    
    
    15,203Revenue payable
    
    
    8,100
    
    
    
    2,273Other current liabilities
    
    
    11,199
    
    
    
    11,339Net cash provided by operating activities
    
    
    137,227
    
    
    
    40,612CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures on oil and natural gas properties
    
    
    (113,722
    )
    
    
    (131,559
    )Acquisition of oil and natural gas properties
    
    
    (10,356
    )
    
    
    Additions to other property and equipment
    
    
    (1,168
    )
    
    
    (1,078
    )Proceeds from the sale of oil and natural gas properties and other assets
    
    
    790
    
    
    
    1,000Settlements received from (paid on) derivatives not designated as hedges
    
    
    (10,840
    )
    
    
    37,124Net cash used in investing activities
    
    
    (135,296
    )
    
    
    (94,513
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of long-term debt
    
    
    109,500
    
    
    
    100,650Payments of long-term debt
    
    
    (329,500
    )
    
    
    (59,900
    )Net proceeds from issuance of common stock
    
    
    219,461
    
    
    
    Exercise of stock options
    
    
    2,498
    
    
    
    2,005Excess tax benefit from stock-based compensation
    
    
    3,498
    
    
    
    804Purchase of treasury stock
    
    
    (219
    )
    
    
    Bank overdrafts
    
    
    (3,415
    )
    
    
    (5,003
    )Net cash provided by financing activities
    
    
    1,823
    
    
    
    38,556Net increase (decrease) in cash and cash equivalents
    
    
    3,754
    
    
    
    (15,345
    )Cash and cash equivalents at beginning of period
    
    
    3,234
    
    
    
    17,752Cash and cash equivalents at end of period
    
    $
    6,988
    
    
    $
    2,407SUPPLEMENTAL CASH FLOWS:Cash paid for interest and fees, net of $18 and $15 capitalized interest
    
    $
    3,729
    
    
    $
    3,457Cash paid for income taxes
    
    $
    9,808
    
    
    $
    1,065
 The accompanying notes are an integral part of these consolidated financial statements.
 4




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Concho Resources Inc.
 
 Condensed Notes to Consolidated Financial Statements  March 31, 2010  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.
 5




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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
  (in thousands)Remaining 2010
    
    $
    3,1502011
    
    
    4,2662012
    
    
    4,3502013
    
    
    3,0212014
    
    
    1,132Thereafter
    
    
    3,717Total
    
    $
    19,636
 Intangible assets.
 (in thousands)Remaining 2010
    
    $
    1,1622011
    
    
    1,5492012
    
    
    1,5492013
    
    
    1,5492014
    
    
    1,549Thereafter
    
    
    28,777Total
    
    $
    36,135
 Oil and natural gas sales and imbalances.
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
  March 31,
    
    
    December 31,(dollars in thousands)
    
    2010
    
    
    2009Natural gas imbalance receivable (included in other assets)
    
    $
    446
    
    
    $
    444Undertake position (Mcf)
    
    
    99,016
    
    
    
    98,584Natural gas imbalance liability (included in asset retirement obligations and other
long-term liabilities)
    
    $
    530
    
    
    $
    533Overtake position (Mcf)
    
    
    100,426
    
    
    
    101,278
 Three Months Ended March 31,2010
    
    
    2009Value of net overtake (undertake) arising during the period increasing (decreasing)
oil and natural gas production expense
    
    $
    (5
    )
    
    $
    49Net overtake (undertake) position arising during the period (Mcf)
    
    
    (1,284
    )
    
    
    11,766
 Treasury stock.
 General and administrative expense .
 Recent accounting pronouncements.
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Note C. Exploratory well costs
   Three Months Ended(in thousands)
    
    March 31, 2010Beginning capitalized exploratory well costs
    
    $
    8,668Additions to exploratory well costs pending the determination of proved reserves
    
    
    30,335Reclassifications due to determination of proved reserves
    
    
    (14,686
    )Exploratory well costs charged to expense
    
    
    Ending capitalized exploratory well costs
    
    $
    24,317
  March 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Wells in drilling progress
    
    $
    6,378
    
    
    $
    1,767Capitalized exploratory well costs that have been capitalized for a period of one year or less
    
    
    17,939
    
    
    
    6,901Capitalized exploratory well costs that have been capitalized for a period greater than one year
    
    
    
    
    
    
    Total capitalized exploratory well costs
    
    $
    24,317
    
    
    $
    8,668
  Note D. Acquisitions
 Wolfberry acquisitions.
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
  (in thousands)Fair value of the Wolfberry Acquisitions net assets:Proved oil and natural gas properties
    
    $
    212,987Unproved oil and natural gas properties
    
    
    58,222Total assets acquired
    
    
    271,209Asset retirement obligations
    
    
    (464
    )Net purchase price
    
    $
    270,745
 Note E. Asset retirement obligations
   Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Asset retirement obligations, beginning of period
    
    $
    22,754
    
    
    $
    16,809Liabilities incurred from new wells
    
    
    446
    
    
    
    168Accretion expense
    
    
    400
    
    
    
    278Disposition of wells
    
    
    
    
    
    
    (142
    )Liabilities settled upon plugging and abandoning wells
    
    
    (185
    )
    
    
    (10
    )Revision of estimates
    
    
    (2,578
    )
    
    
    1,151Asset retirement obligations, end of period
    
    $
    20,837
    
    
    $
    18,254
 Note F. Stockholders equity
 Equity issuance.
 Treasury stock.
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
  Note G. Incentive plans
 Defined contribution plan.
 Stock incentive plan.
 Number ofCommon SharesApproved and authorized awards
    
    
    5,850,000Stock option grants, net of forfeitures
    
    
    (3,463,720
    )Restricted stock grants, net of forfeitures
    
    
    (948,136
    )Awards available for future grant
    
    
    1,438,144
 Restricted stock awards.
 Number of
    
    Grant DateRestricted
    
    Fair ValueShares
    
    Per ShareRestricted stock:Outstanding at December 31, 2009
    
    
    497,257Shares granted
    
    
    144,801
    
    
    $
    45.52Shares cancelled / forteited
    
    
    (1,719
    )Lapse of restrictions
    
    
    (42,523
    )Outstanding at March 31, 2010
    
    
    597,816
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
  Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Grant date fair value for awards during the period:Employee grants
    
    $
    1,590
    
    
    $
    Officer and director grants
    
    
    5,075
    
    
    
    1,850Total
    
    $
    6,665
    
    
    $
    1,850Stock-based compensation expense from restricted stock:Employee grants
    
    $
    978
    
    
    $
    563Officer and director grants
    
    
    844
    
    
    
    334Total
    
    $
    1,822
    
    
    $
    897Income taxes and other information:Income tax benefit related to restricted stock
    
    $
    689
    
    
    $
    341Deductions in current taxable income related to restricted stock
    
    $
    1,707
    
    
    $
    378
 Stock option awards.
 WeightedAverageNumber of
    
    ExerciseOptions
    
    PriceStock options:Outstanding at December 31, 2009
    
    
    2,156,503
    
    
    $
    14.11Options granted
    
    
    
    
    
    $
    Options exercised
    
    
    (248,915
    )
    
    $
    10.03Outstanding at March 31, 2010
    
    
    1,907,588
    
    
    $
    14.64Vested at end of period
    
    
    1,347,376
    
    
    $
    12.24Exercisable at end of period
    
    
    935,160
    
    
    $
    14.03
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Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
  WeightedAverage
    
    
    WeightedNumber
    
    
    Remaining
    
    
    Averageof Stock
    
    
    Contractual
    
    
    Exercise
    
    
    IntrinsicOptions
    
    
    Life
    
    
    Price
    
    
    Value(in thousands)Vested options:March 31, 2010:Exercise price
    
    $
    8.00
    
    
    
    782,753
    
    
    1.86 years
    
    $
    8.00
    
    
    $
    33,157Exercise price
    
    $
    12.00
    
    
    
    103,854
    
    
    4.56 years
    
    $
    12.00
    
    
    
    3,984Exercise price
    
    $
    14.62
    
    
    
    188,750
    
    
    6.57 years
    
    $
    14.62
    
    
    
    6,745Exercise price
    
    $
    21.67
    
    
    
    240,328
    
    
    8.05 years
    
    $
    21.67
    
    
    
    6,895Exercise price
    
    $
    32.03
    
    
    
    31,691
    
    
    8.26 years
    
    $
    32.03
    
    
    
    5811,347,376
    
    
    3.98 years
    
    $
    12.24
    
    
    $
    51,362Exercisable options:March 31, 2010:Exercise price
    
    $
    8.00
    
    
    
    388,365
    
    
    1.98 years
    
    $
    8.00
    
    
    $
    16,451Exercise price
    
    $
    12.00
    
    
    
    86,026
    
    
    5.14 years
    
    $
    12.00
    
    
    
    3,300Exercise price
    
    $
    14.62
    
    
    
    188,750
    
    
    6.57 years
    
    $
    14.62
    
    
    
    6,745Exercise price
    
    $
    21.67
    
    
    
    240,328
    
    
    8.05 years
    
    $
    21.67
    
    
    
    6,895Exercise price
    
    $
    32.03
    
    
    
    31,691
    
    
    8.26 years
    
    $
    32.03
    
    
    
    581935,160
    
    
    4.97 years
    
    $
    14.03
    
    
    $
    33,972
 12




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
  Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Grant date fair value for awards during the period:Employee grants
    
    $
    
    
    
    $
    Officer and director grants
    
    
    
    
    
    
    1,454Total
    
    $
    
    
    
    $
    1,454Stock-based compensation expense from stock options:Employee grants
    
    $
    44
    
    
    $
    71Officer and director grants
    
    
    965
    
    
    
    957Total
    
    $
    1,009
    
    
    $
    1,028Income taxes and other information:Income tax benefit related to stock options
    
    $
    381
    
    
    $
    391Deductions in current taxable income related to stock options exercised
    
    $
    9,651
    
    
    $
    3,040
  Future stock-based compensation expense.
 Restricted
    
    
    Stock(in thousands)
    
    Stock
    
    
    Options
    
    
    TotalRemaining 2010
    
    $
    6,012
    
    
    $
    1,643
    
    
    $
    7,6552011
    
    
    4,331
    
    
    
    879
    
    
    
    5,2102012
    
    
    1,669
    
    
    
    184
    
    
    
    1,8532013
    
    
    454
    
    
    
    15
    
    
    
    4692014
    
    
    48
    
    
    
    1
    
    
    
    49Total
    
    $
    12,514
    
    
    $
    2,722
    
    
    $
    15,236
 13




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Note H. Disclosures about fair value of financial instruments
  Level 1:
    
    Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities. The Company considers
active markets to be those in which transactions for the assets or liabilities occur in
sufficient frequency and volume to provide pricing information on an ongoing basis.
 Level 2:
    
    Quoted prices in markets that are not active, or inputs which are observable,
either directly or indirectly, for substantially the full term of the asset or liability.
This category includes those derivative instruments that the Company values using
observable market data. Substantially all of these inputs are observable in the
marketplace throughout the full term of the derivative instrument, can be derived from
observable data, or supported by observable levels at which transactions are executed in
the marketplace. Level 2 instruments primarily include non-exchange traded derivatives
such as over-the-counter commodity price swaps, basis swaps, investments and interest
rate swaps. The Companys valuation models are primarily industry-standard models that
consider various inputs including: (i) quoted forward prices for commodities, (ii) time
value and (iii) current market and contractual prices for the underlying instruments, as
well as other relevant economic measures. The Company utilizes its counterparties
valuations to assess the reasonableness of its prices and valuation techniques.
 Level 3:
    
    Measured based on prices or valuation models that require inputs that are both
significant to the fair value measurement and less observable from objective sources
(i.e., supported by little or no market activity). Level 3 instruments primarily include
derivative instruments, such as commodity price collars and floors, as well as
investments. The Companys valuation models are primarily industry-standard models that
consider various inputs including: (i) quoted forward prices for commodities, (ii) time
value, (iii) volatility factors and (iv) current market and contractual prices for the
underlying instruments, as well as other relevant economic measures. Although the
Company utilizes its counterparties valuations to assess the reasonableness of its
prices and valuation techniques, the Company does not have sufficient corroborating
market evidence to support classifying these assets and liabilities as Level 2.
 14




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
  Fair Value Measurements at Reporting Date UsingSignificantQuoted Prices in
    
    
    Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    Unobservable
    
    
    Fair Value atIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    March 31,(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2010Assets:Commodity derivative price swap contracts
    
    $
    
    
    
    $
    66,850
    
    
    $
    
    
    
    $
    66,850Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    6,961
    
    
    
    6,961
    
    
    
    66,850
    
    
    
    6,961
    
    
    
    73,811Liabilities:Commodity derivative price swap contracts
    
    
    
    
    
    
    (100,913
    )
    
    
    
    
    
    
    (100,913
    )Commodity derivative basis swap contracts
    
    
    
    
    
    
    (8,605
    )
    
    
    
    
    
    
    (8,605
    )Interest rate derivative swap contracts
    
    
    
    
    
    
    (4,713
    )
    
    
    
    
    
    
    (4,713
    )
    
    
    
    (114,231
    )
    
    
    
    
    
    
    (114,231
    )Net financial assets (liabilities)
    
    $
    
    
    
    $
    (47,381
    )
    
    $
    6,961
    
    
    $
    (40,420
    )
  (in thousands)Balance at December 31, 2009
    
    $
    (945
    )Realized and unrealized gains, net
    
    
    7,996Settlements (receipts), net
    
    
    (90
    )Balance at March 31, 2010
    
    $
    6,961Total gains for the period included in earnings attributable to the change in unrealized gains relating to assets
(liabilities) still held at the reporting date
    
    $
    7,906
 15




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Assets and Liabilities Measured at Fair Value on a Recurring Basis
  March 31, 2010
    
    December 31, 2009Carrying
    
    Fair
    
    Carrying
    
    Fair(in thousands)
    
    Value
    
    Value
    
    Value
    
    ValueAssets:Derivative instruments
    
    $
    36,057
    
    
    $
    36,057
    
    
    $
    24,923
    
    
    $
    24,923Liabilities:Derivative instruments
    
    $
    76,477
    
    
    $
    76,477
    
    
    $
    91,756
    
    
    $
    91,756Credit facility
    
    $
    330,000
    
    
    $
    319,463
    
    
    $
    550,000
    
    
    $
    528,8498.625% senior notes due 2017
    
    $
    295,928
    
    
    $
    318,000
    
    
    $
    295,836
    
    
    $
    315,000
 Cash and cash equivalents, accounts receivable, other current assets, accounts payable,
interest payable and other current liabilities.
 Credit facility.
 Senior notes.
 16




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Derivative instruments.
 Fair Value Measurements UsingSignificant
    
    
    
    
    
    
    TotalQuoted Prices in
    
    
    Other
    
    
    Significant
    
    
    Carrying ValueActive Markets for
    
    
    Observable
    
    
    Unobservable
    
    
    atIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    March 31,(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2010Assets(1)Current: (a)Commodity derivative price swap contracts
    
    $
    
    
    
    $
    25,976
    
    
    $
    
    
    
    $
    25,976Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    6,961
    
    
    
    6,961
    
    
    
    25,976
    
    
    
    6,961
    
    
    
    32,937Noncurrent: (b)Commodity derivative price swap contracts
    
    
    
    
    
    
    40,874
    
    
    
    
    
    
    
    40,874Interest rate derivative swap contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,874
    
    
    
    
    
    
    
    40,874Liabilities(1)Current: (a)Commodity derivative price swap contracts
    
    
    
    
    
    
    (69,307
    )
    
    
    
    
    
    
    (69,307
    )Commodity derivative basis swap contracts
    
    
    
    
    
    
    (5,675
    )
    
    
    
    
    
    
    (5,675
    )Interest rate derivative swap contracts
    
    
    
    
    
    
    (4,206
    )
    
    
    
    
    
    
    (4,206
    )
    
    
    
    (79,188
    )
    
    
    
    
    
    
    (79,188
    )Noncurrent: (b)Commodity derivative price swap contracts
    
    
    
    
    
    
    (31,606
    )
    
    
    
    
    
    
    (31,606
    )Commodity derivative basis swap contracts
    
    
    
    
    
    
    (2,930
    )
    
    
    
    
    
    
    (2,930
    )Interest rate derivative swap contracts
    
    
    
    
    
    
    (507
    )
    
    
    
    
    
    
    (507
    )
    
    
    
    (35,043
    )
    
    
    
    
    
    
    (35,043
    )Net financial assets (liabilities)
    
    $
    
    
    
    $
    (47,381
    )
    
    $
    6,961
    
    
    $
    (40,420
    )(a)Total current financial assets (liabilities), gross basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (46,251
    )(b)Total noncurrent financial assets (liabilities), gross basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,831Net financial assets (liabilities)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (40,420
    )
 17




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Fair Value Measurements UsingSignificant
    
    
    
    
    
    
    TotalQuoted Prices in
    
    
    Other
    
    
    Significant
    
    
    Carrying ValueActive Markets for
    
    
    Observable
    
    
    Unobservable
    
    
    atIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    December 31,(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2009Assets (1)Current: (a)Commodity derivative price swap contracts
    
    $
    
    
    
    $
    13,850
    
    
    $
    
    
    
    $
    13,850Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    134
    
    
    
    134
    
    
    
    13,850
    
    
    
    134
    
    
    
    13,984Noncurrent: (b)Commodity derivative price swap contracts
    
    
    
    
    
    
    35,016
    
    
    
    
    
    
    
    35,016Interest rate derivative swap contracts
    
    
    
    
    
    
    1,369
    
    
    
    
    
    
    
    1,369
    
    
    
    36,385
    
    
    
    
    
    
    
    36,385Liabilities(1)Current: (a)Commodity derivative price swap contracts
    
    
    
    
    
    
    (65,351
    )
    
    
    
    
    
    
    (65,351
    )Commodity derivative basis swap contracts
    
    
    
    
    
    
    (5,254
    )
    
    
    
    
    
    
    (5,254
    )Interest rate derivative swap contracts
    
    
    
    
    
    
    (3,870
    )
    
    
    
    
    
    
    (3,870
    )Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    (619
    )
    
    
    (619
    )
    
    
    
    (74,475
    )
    
    
    (619
    )
    
    
    (75,094
    )Noncurrent: (b)Commodity derivative price swap contracts
    
    
    
    
    
    
    (38,259
    )
    
    
    
    
    
    
    (38,259
    )Commodity derivative basis swap contracts
    
    
    
    
    
    
    (3,389
    )
    
    
    
    
    
    
    (3,389
    )Commodity derivative price collar contracts
    
    
    
    
    
    
    
    
    
    
    (460
    )
    
    
    (460
    )
    
    
    
    (41,648
    )
    
    
    (460
    )
    
    
    (42,108
    )Net financial assets (liabilities)
    
    $
    
    
    
    $
    (65,888
    )
    
    $
    (945
    )
    
    $
    (66,833
    )(a)Total current financial assets (liabilities), gross basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (61,110
    )(b)Total noncurrent financial assets (liabilities),
gross basis
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,723
    )Net financial assets (liabilities)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (66,833
    )
 
 (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 March 31, 2010 and December 31, 2009: 18




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 March 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Consolidated Balance Sheet Classification:Current derivative contracts:Assets
    
    $
    9,078
    
    
    $
    1,309Liabilities
    
    
    (55,329
    )
    
    
    (62,419
    )Net current
    
    $
    (46,251
    )
    
    $
    (61,110
    )Noncurrent derivative contracts:Assets
    
    $
    26,979
    
    
    $
    23,614Liabilities
    
    
    (21,148
    )
    
    
    (29,337
    )Net noncurrent
    
    $
    5,831
    
    
    $
    (5,723
    )
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Impairments of long-lived assets 
  Carrying
    
    Estimated
    
    Impairment(in thousands)
    
    Amount
    
    Fair Value
    
    ExpenseThree months ended March 31, 2010
    
    $
    5,892
    
    
    $
    3,272
    
    
    $
    2,620Three months ended March 31, 2009
    
    $
    6,943
    
    
    $
    2,887
    
    
    $
    4,056
 Asset Retirement Obligations 
 19




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
  Fair Value Measurements UsingSignificantQuoted Prices in
    
    Other
    
    SignificantActive Markets for
    
    Observable
    
    Unobservable
    
    TotalIdentical Assets
    
    Inputs
    
    Inputs
    
    Impairment(in thousands)
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    LossThree months ended March 31, 2010:Impairment of long-lived assets
    
    $
    
    
    
    $
    
    
    
    $
    3,272
    
    
    $
    (2,620
    )Asset retirement obligations incurred in current period
    
    
    
    
    
    
    
    
    
    
    446Three months ended March 31, 2009:Impairment of long-lived assets
    
    $
    
    
    
    $
    
    
    
    $
    2,887
    
    
    $
    (4,056
    )Asset retirement obligations incurred in current period
    
    
    
    
    
    
    
    
    
    
    168
 Note I. Derivative financial instruments
   20




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 New commodity derivative contracts in the first quarter of 2010.
 Aggregate
    
    Index
    
    ContractVolume
    
    Price
    
    PeriodOil (volumes in Bbls):Price swap
    
    
    670,000
    
    
    $
    83.72
    (a)
    
    
    1/1/10 - 12/31/10Price swap
    
    
    195,000
    
    
    $
    76.85
    (a)
    
    
    3/1/10 - 12/31/10Price swap
    
    
    792,000
    
    
    $
    81.77
    (a)
    
    
    1/1/11 - 12/31/11Price swap
    
    
    168,000
    
    
    $
    89.00
    (a)
    
    
    1/1/12 - 12/31/12Natural gas (volumes in MMBtus):Price swap
    
    
    418,000
    
    
    $
    5.99
    (b)
    
    
    2/1/10 - 12/31/10Price swap
    
    
    1,250,000
    
    
    $
    5.55
    (b)
    
    
    3/1/10 - 12/31/10Price swap
    
    
    5,076,000
    
    
    $
    6.14
    (b)
    
    
    1/1/11 - 12/31/11Price swap
    
    
    300,000
    
    
    $
    6.54
    (b)
    
    
    1/1/12 - 12/31/12
 
 (a)
    
    The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate
monthly average futures price.(b)
    
    The index prices for the natural gas price swaps are based on the NYMEX-Henry Hub last trading
day futures price. 21




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Commodity derivative contracts at March 31, 2010.
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    TotalOil Swaps:(a)2010:Volume (Bbl)
    
    
    
    
    
    
    1,387,936
    
    
    
    1,263,936
    
    
    
    1,172,936
    
    
    
    3,824,808Price per Bbl
    
    
    
    
    
    $
    71.81
    
    
    $
    71.59
    
    
    $
    71.42
    
    
    $
    71.612011:Volume (Bbl)
    
    
    1,042,436
    
    
    
    1,003,436
    
    
    
    968,436
    
    
    
    936,436
    
    
    
    3,950,744Price per Bbl
    
    $
    78.10
    
    
    $
    78.30
    
    
    $
    78.49
    
    
    $
    78.68
    
    
    $
    78.382012:Volume (Bbl)
    
    
    168,000
    
    
    
    168,000
    
    
    
    168,000
    
    
    
    168,000
    
    
    
    672,000Price per Bbl
    
    $
    118.10
    
    
    $
    118.10
    
    
    $
    118.10
    
    
    $
    118.10
    
    
    $
    118.10Natural Gas Swaps:(b)2010:Volume (MMBtu)
    
    
    
    
    
    
    2,647,000
    
    
    
    2,427,000
    
    
    
    2,258,000
    
    
    
    7,332,000Price per MMBtu
    
    
    
    
    
    $
    6.03
    
    
    $
    6.03
    
    
    $
    6.03
    
    
    $
    6.032011:Volume (MMBtu)
    
    
    1,569,000
    
    
    
    3,069,000
    
    
    
    3,069,000
    
    
    
    3,069,000
    
    
    
    10,776,000Price per MMBtu
    
    $
    6.36
    
    
    $
    6.62
    
    
    $
    6.62
    
    
    $
    6.62
    
    
    $
    6.582012:Volume (MMBtu)
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,000
    
    
    
    75,000
    
    
    
    300,000Price per MMBtu
    
    $
    6.54
    
    
    $
    6.54
    
    
    $
    6.54
    
    
    $
    6.54
    
    
    $
    6.54Natural Gas Collars:(b)2010:Volume (MMBtu)
    
    
    
    
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    4,500,000Price per MMBtu
    
    
    
    
    
    $
    5.25 - $5.75
    
    
    $
    5.25 - $5.75
    
    
    $
    6.00 - $6.80
    
    
    $
    5.50 - $6.102011:Volume (MMBtu)
    
    
    1,500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000Price per MMBtu
    
    $
    6.00 - $6.80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6.00 - $6.80Natural Gas Basis Swaps:(c)2010:Volume (MMBtu)
    
    
    
    
    
    
    2,100,000
    
    
    
    2,100,000
    
    
    
    2,100,000
    
    
    
    6,300,000Price per MMBtu
    
    
    
    
    
    $
    0.85
    
    
    $
    0.85
    
    
    $
    0.85
    
    
    $
    0.852011:Volume (MMBtu)
    
    
    1,800,000
    
    
    
    1,800,000
    
    
    
    1,800,000
    
    
    
    1,800,000
    
    
    
    7,200,000Price per MMBtu
    
    $
    0.87
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.79
 
 (a)
    
    The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate
monthly average futures price.(b)
    
    The index prices for the natural gas price swaps and collars are based on the NYMEX-Henry Hub
last trading day futures price.(c)
    
    The basis differential between the El Paso Permian delivery point and NYMEX Henry Hub delivery
point. 22




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Interest rate derivative contracts.
  Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Gain (loss) on derivatives not designated as hedges:Cash (payments on) receipts from derivatives not designated as hedges:Commodity derivatives:Oil
    
    $
    (10,133
    )
    
    $
    34,584Natural gas
    
    
    506
    
    
    
    2,540Interest rate derivatives
    
    
    (1,213
    )
    
    
    Mark-to-market gain (loss):Commodity derivatives:Oil
    
    
    1,438
    
    
    
    (39,037
    )Natural gas
    
    
    27,187
    
    
    
    (706
    )Interest rate derivatives
    
    
    (2,212
    )
    
    
    (2,427
    )Total gain (loss) on derivatives not designated as hedges
    
    $
    15,573
    
    
    $
    (5,046
    )
  Second quarter 2010 commodity derivative contracts.
 Aggregate
    
    Index
    
    ContractVolume
    
    Price
    
    PeriodOil (volumes in Bbls):Price swap
    
    
    1,463,000
    
    
    $
    88.63
    (a)
    
    
    5/1/10 - 12/31/10Price swap
    
    
    1,344,000
    
    
    $
    92.25
    (a)
    
    
    1/1/11 - 12/31/11Price swap
    
    
    2,040,000
    
    
    $
    92.98
    (a)
    
    
    1/1/12 - 12/31/12
 
 (a)
    
    The index price for the oil price swap is based on the NYMEX-West Texas Intermediate monthly
average futures price. 23




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Note J. Debt
  March 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Credit facility
    
    $
    330,000
    
    
    $
    550,0008.625% unsecured senior notes due 2017
    
    
    300,000
    
    
    
    300,000Less: unamortized original issue discount
    
    
    (4,072
    )
    
    
    (4,164
    )Less: current portion
    
    
    
    
    
    
    Total long-term debt
    
    $
    625,928
    
    
    $
    845,836
 Credit facility.
    8.625% unsecured senior notes.
  24




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
   (in thousands)Remaining 2010
    
    $
    2922011
    
    
    4212012
    
    
    4622013
    
    
    5072014
    
    
    557Thereafter
    
    
    1,833Total
    
    $
    4,072
 Principal maturities of debt.
 (in thousands)2010
    
    $
    2011
    
    
    2012
    
    
    2013
    
    
    330,0002014 and thereafter
    
    
    300,000Total
    
    $
    630,000
 25




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Interest expense.
 Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Cash payments for interest
    
    $
    3,747
    
    
    $
    3,472Amortization of original issue discount
    
    
    92
    
    
    
    Amortization of deferred loan origination costs
    
    
    1,040
    
    
    
    856Net changes in accruals
    
    
    6,204
    
    
    
    57Interest costs incurred
    
    
    11,083
    
    
    
    4,385Less: capitalized interest
    
    
    (18
    )
    
    
    (15
    )Total interest expense
    
    $
    11,065
    
    
    $
    4,370
 26




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Note K. Commitments and contingencies
 Severance agreements.
 Indemnifications .
 Legal actions .
 Acquisition commitments .
 Daywork commitments.
 Payments Due By PeriodLess than
    
    
    1 - 3
    
    
    3 - 5
    
    
    More than(in thousands)
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsDaywork drilling contracts with related parties (a)
    
    $
    1,000
    
    
    $
    1,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Daywork drilling contracts assumed in the Henry Entities acquisition (b)
    
    
    421
    
    
    
    421
    
    
    
    
    
    
    
    
    
    
    
    Total contractual drilling commitments
    
    $
    1,421
    
    
    $
    1,421
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (a)
    
    Consists of daywork drilling contracts with Silver Oak Drilling, LLC, an affiliate
of Chase Oil Corporation, a stockholder of the Company.(b)
    
    A major oil and natural gas company which owns an interest in the wells being
drilled and the Company are parties to these contracts. Only the Companys 25 percent share of
the contract obligation has been reflected above. 27




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Operating leases.
 (in thousands)Remaining 2010
    
    $
    1,7002011
    
    
    1,7342012
    
    
    1,2992013
    
    
    1,1702014 and thereafter
    
    
    3,518Total
    
    $
    9,421
 Note L. Income taxes
     28




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Income tax provision.
 Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Income (loss) from operations
    
    $
    39,940
    
    
    $
    (8,106
    )Changes in stockholders equity:Excess tax benefits related to stock-based compensation
    
    
    (3,498
    )
    
    
    (804
    )$
    36,442
    
    
    $
    (8,910
    )
  Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Current:U.S. federal
    
    $
    10,878
    
    
    $
    2,438U.S. state and local
    
    
    1,233
    
    
    
    32712,111
    
    
    
    2,765Deferred:U.S. federal
    
    
    24,681
    
    
    
    (9,585
    )U.S. state and local
    
    
    3,148
    
    
    
    (1,286
    )27,829
    
    
    
    (10,871
    )$
    39,940
    
    
    $
    (8,106
    )
  Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Income (loss) at U.S. federal statutory rate
    
    $
    37,618
    
    
    $
    (7,466
    )State income taxes (net of federal tax effect)
    
    
    2,848
    
    
    
    (623
    )Statutory depletion
    
    
    (223
    )
    
    
    Nondeductible expense & other
    
    
    (303
    )
    
    
    (17
    )Income tax expense (benefit)
    
    $
    39,940
    
    
    $
    (8,106
    )
 29




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Note M. Related parties
 Consulting Agreement.
 Mack Energy Corporation transactions.
  Saltwater disposal services agreement.
 Other related party transactions.
   Overriding royalty and royalty interests.
  30




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Working interests owned by employees.
 Three Months Ended March 31,(in thousands)
    
    2010
    
    2009Revenues distributed to employees
    
    $
    78
    
    
    $
    30Joint interest payments received from employees
    
    $
    230
    
    
    $
    639
 March 31,
    
    December 31,2010
    
    2009Amounts included in accounts receivable  related parties
    
    $
    172
    
    
    $
    128Amounts included in accounts payable  related parties
    
    $
    15
    
    
    $
    13
 Note N. Net income (loss) per share
    Three Months Ended March 31,(in thousands)
    
    2010
    
    2009Weighted average common shares outstanding:Basic
    
    
    88,831
    
    
    
    84,529Dilutive capital options
    
    
    558
    
    
    
    Dilutive common stock options
    
    
    404
    
    
    
    Dilutive restricted stock
    
    
    337
    
    
    
    Diluted
    
    
    90,130
    
    
    
    84,529
  31




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Note O. Other current liabilities
  March 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Other current liabilities:Accrued production costs
    
    $
    26,880
    
    
    $
    24,128Payroll related matters
    
    
    14,742
    
    
    
    14,490Accrued interest
    
    
    16,258
    
    
    
    10,055Asset retirement obligations
    
    
    2,332
    
    
    
    3,262Settlements due on derivatives not designated as hedges
    
    
    4,672
    
    
    
    Other
    
    
    8,594
    
    
    
    8,160Other current liabilities
    
    $
    73,478
    
    
    $
    60,095
 Note P. Subsidiary guarantors
  32




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Condensed Consolidating Balance Sheet
March 31, 2010
 Parent
    
    
    Subsidiary
    
    
    Consolidating(in thousands)
    
    Issuer
    
    
    Guarantors
    
    
    Entries
    
    
    TotalASSETSAccounts receivable  related parties
    
    $
    3,880,804
    
    
    $
    2,469,257
    
    
    $
    (6,349,654
    )
    
    $
    407Other current assets
    
    
    27,447
    
    
    
    197,962
    
    
    
    
    
    
    
    225,409Total oil and natural gas properties, net
    
    
    
    
    
    
    2,935,760
    
    
    
    
    
    
    
    2,935,760Total property and equipment, net
    
    
    
    
    
    
    15,976
    
    
    
    
    
    
    
    15,976Investment in subsidiaries
    
    
    978,756
    
    
    
    
    
    
    
    (978,756
    )
    
    
    Total other long-term assets
    
    
    46,615
    
    
    
    56,366
    
    
    
    
    
    
    
    102,981Total assets
    
    $
    4,933,622
    
    
    $
    5,675,321
    
    
    $
    (7,328,410
    )
    
    $
    3,280,533LIABILITIES AND EQUITYAccounts payable  related parties
    
    $
    1,968,955
    
    
    $
    4,381,047
    
    
    $
    (6,349,654
    )
    
    $
    348Other current liabilities
    
    
    72,630
    
    
    
    293,588
    
    
    
    
    
    
    
    366,218Other long-term liabilities
    
    
    635,072
    
    
    
    21,930
    
    
    
    
    
    
    
    657,002Long-term debt
    
    
    625,928
    
    
    
    
    
    
    
    
    
    
    
    625,928Equity
    
    
    1,631,037
    
    
    
    978,756
    
    
    
    (978,756
    )
    
    
    1,631,037Total liabilities and equity
    
    $
    4,933,622
    
    
    $
    5,675,321
    
    
    $
    (7,328,410
    )
    
    $
    3,280,533
 Condensed Consolidating Balance Sheet
December 31, 2009
 Parent
    
    
    Subsidiary
    
    
    Consolidating(in thousands)
    
    Issuer
    
    
    Guarantors
    
    
    Entries
    
    
    TotalASSETSAccounts receivable  related parties
    
    $
    2,715,307
    
    
    $
    1,738,382
    
    
    $
    (4,453,473
    )
    
    $
    216Other current assets
    
    
    33,561
    
    
    
    183,481
    
    
    
    
    
    
    
    217,042Total oil and natural gas properties, net
    
    
    
    
    
    
    2,840,583
    
    
    
    
    
    
    
    2,840,583Total property and equipment, net
    
    
    
    
    
    
    15,706
    
    
    
    
    
    
    
    15,706Investment in subsidiaries
    
    
    876,154
    
    
    
    
    
    
    
    (876,154
    )
    
    
    Total other long-term assets
    
    
    44,291
    
    
    
    53,247
    
    
    
    
    
    
    
    97,538Total assets
    
    $
    3,669,313
    
    
    $
    4,831,399
    
    
    $
    (5,329,627
    )
    
    $
    3,171,085LIABILITIES AND EQUITYAccounts payable  related parties
    
    $
    790,251
    
    
    $
    3,663,513
    
    
    $
    (4,453,473
    )
    
    $
    291Other current liabilities
    
    
    68,706
    
    
    
    268,017
    
    
    
    
    
    
    
    336,723Other long-term liabilities
    
    
    629,092
    
    
    
    23,715
    
    
    
    
    
    
    
    652,807Long-term debt
    
    
    845,836
    
    
    
    
    
    
    
    
    
    
    
    845,836Equity
    
    
    1,335,428
    
    
    
    876,154
    
    
    
    (876,154
    )
    
    
    1,335,428Total liabilities and equity
    
    $
    3,669,313
    
    
    $
    4,831,399
    
    
    $
    (5,329,627
    )
    
    $
    3,171,085
 33




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Condensed Consolidating Statement of Operations

For the Three Months Ended March 31, 2010
 Parent
    
    
    Subsidiary
    
    
    Consolidating(in thousands)
    
    Issuer
    
    
    Guarantors
    
    
    Entries
    
    
    TotalTotal operating revenues
    
    $
    
    
    
    $
    212,000
    
    
    $
    
    
    
    $
    212,000Total operating costs and expenses
    
    
    15,943
    
    
    
    (109,325
    )
    
    
    
    
    
    
    (93,382
    )Income from operations
    
    
    15,943
    
    
    
    102,675
    
    
    
    
    
    
    
    118,618Interest expense
    
    
    (11,065
    )
    
    
    
    
    
    
    
    
    
    
    (11,065
    )Other, net
    
    
    102,602
    
    
    
    (73
    )
    
    
    (102,602
    )
    
    
    (73
    )Income before income taxes
    
    
    107,480
    
    
    
    102,602
    
    
    
    (102,602
    )
    
    
    107,480Income tax expense
    
    
    (39,940
    )
    
    
    
    
    
    
    
    
    
    
    (39,940
    )Net income
    
    $
    67,540
    
    
    $
    102,602
    
    
    $
    (102,602
    )
    
    $
    67,540
 Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2009
 Parent
    
    
    Subsidiary
    
    
    Consolidating(in thousands)
    
    Issuer
    
    
    Guarantors
    
    
    Entries
    
    
    TotalTotal operating revenues
    
    $
    
    
    
    $
    86,002
    
    
    $
    
    
    
    $
    86,002Total operating costs and expenses
    
    
    (5,217
    )
    
    
    (97,418
    )
    
    
    
    
    
    
    (102,635
    )Loss from operations
    
    
    (5,217
    )
    
    
    (11,416
    )
    
    
    
    
    
    
    (16,633
    )Interest expense
    
    
    (4,370
    )
    
    
    
    
    
    
    
    
    
    
    (4,370
    )Other, net
    
    
    (11,744
    )
    
    
    (328
    )
    
    
    11,744
    
    
    
    (328
    )Loss before income taxes
    
    
    (21,331
    )
    
    
    (11,744
    )
    
    
    11,744
    
    
    
    (21,331
    )Income tax benefit
    
    
    8,106
    
    
    
    
    
    
    
    
    
    
    
    8,106Net loss
    
    $
    (13,225
    )
    
    $
    (11,744
    )
    
    $
    11,744
    
    
    $
    (13,225
    )
 34




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2010
 Parent
    
    
    Subsidiary
    
    
    Consolidating(in thousands)
    
    Issuer
    
    
    Guarantors
    
    
    Entries
    
    
    TotalNet cash flows provided by operating activities
    
    $
    4,894
    
    
    $
    132,333
    
    
    $
    
    
    
    $
    137,227Net cash flows used in investing activities
    
    
    (10,168
    )
    
    
    (125,128
    )
    
    
    
    
    
    
    (135,296
    )Net cash flows provided by (used in) financing activities
    
    
    5,238
    
    
    
    (3,415
    )
    
    
    
    
    
    
    1,823Net increase (decrease) in cash and cash equivalents
    
    
    (36
    )
    
    
    3,790
    
    
    
    
    
    
    
    3,754Cash and cash equivalents at beginning of period
    
    
    48
    
    
    
    3,186
    
    
    
    
    
    
    
    3,234Cash and cash equivalents at end of period
    
    $
    12
    
    
    $
    6,976
    
    
    $
    
    
    
    $
    6,988
 Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2009
 Parent
    
    
    Subsidiary
    
    
    Consolidating(in thousands)
    
    Issuer
    
    
    Guarantors
    
    
    Entries
    
    
    TotalNet cash flows provided by (used in) operating activities
    
    $
    (80,613
    )
    
    $
    121,225
    
    
    $
    
    
    
    $
    40,612Net cash flows provided by (used in) investing activities
    
    
    37,124
    
    
    
    (131,637
    )
    
    
    
    
    
    
    (94,513
    )Net cash flows provided by (used in) financing activities
    
    
    43,559
    
    
    
    (5,003
    )
    
    
    
    
    
    
    38,556Net increase (decrease) in cash and cash equivalents
    
    
    70
    
    
    
    (15,415
    )
    
    
    
    
    
    
    (15,345
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    17,752
    
    
    
    
    
    
    
    17,752Cash and cash equivalents at end of period
    
    $
    70
    
    
    $
    2,337
    
    
    $
    
    
    
    $
    2,407
 35




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##### Table of Contents



Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
March 31, 2010
Unaudited
 Note Q. Supplementary information
 Capitalized costs
 March 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Oil and natural gas properties:Proved
    
    $
    3,271,195
    
    
    $
    3,139,424Unproved
    
    
    237,127
    
    
    
    218,580Less: accumulated depletion
    
    
    (572,562
    )
    
    
    (517,421
    )Net capitalized costs for oil and natural gas properties
    
    $
    2,935,760
    
    
    $
    2,840,583
 Costs incurred for oil and natural gas producing activities (a)
 Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Property acquisition costs:(b)Proved
    
    $
    9,842
    
    
    $
    (940
    )Unproved
    
    
    5,356
    
    
    
    1,221Exploration
    
    
    25,499
    
    
    
    23,809Development
    
    
    111,706
    
    
    
    83,779Total costs incurred for oil and natural gas properties
    
    $
    152,403
    
    
    $
    107,869
 
 (a)
    
    The costs incurred for oil and natural gas producing activities includes the following
amounts of asset retirement obligations: Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Proved property acquisition costs
    
    $
    
    
    
    $
    Exploration costs
    
    
    68
    
    
    
    168Development costs
    
    
    (2,200
    )
    
    
    1,151Total
    
    $
    (2,132
    )
    
    $
    1,319
 (b)
    
    During the three months ended March 31, 2009, the Company adjusted the purchase price
allocation related to the acquisition of the Henry Entities. This adjustment reduced the
proved acquisition costs by $940,000 and increased the unproved acquisition costs by $591,000. 36




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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.
  37




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##### Table of Contents



Three Months Ended March 31,2010
    
    2009Average NYMEX prices:Oil (Bbl)
    
    $
    78.61
    
    
    $
    43.30Natural gas (MMBtu)
    
    $
    5.03
    
    
    $
    4.49High / Low NYMEX prices:Oil (Bbl):High
    
    $
    83.76
    
    
    $
    54.34Low
    
    $
    71.19
    
    
    $
    33.98Natural gas (MMBtu):High
    
    $
    6.01
    
    
    $
    6.07Low
    
    $
    3.84
    
    
    $
    3.63
  Recent Events
 Credit facility borrowing base.
 Equity issuance.
 Wolfberry acquisitions.
 38




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##### Table of Contents



2010 capital budget.
 2010(in millions)
    
    BudgetDrilling and recompletion opportunities in our core operating area
    
    $
    502Projects operated by third parties
    
    
    8Emerging plays, acquisition of leasehold acreage and other
property interests, and geological and geophysical
    
    
    82Facilities capital in our core operating areas
    
    
    33Total 2010 capital budget
    
    $
    625
 Derivative Financial Instruments
 Derivative financial instrument exposure.
 New commodity derivative contracts .
 Aggregate
    
    Index
    
    ContractVolume
    
    Price
    
    PeriodOil (volumes in Bbls):Price swap
    
    
    670,000
    
    
    $
    83.72
    (a)
    
    
    1/1/10 - 12/31/10Price swap
    
    
    195,000
    
    
    $
    76.85
    (a)
    
    
    3/1/10 - 12/31/10Price swap
    
    
    792,000
    
    
    $
    81.77
    (a)
    
    
    1/1/11 - 12/31/11Price swap
    
    
    168,000
    
    
    $
    89.00
    (a)
    
    
    1/1/12 - 12/31/12Natural gas (volumes in MMBtus):Price swap
    
    
    418,000
    
    
    $
    5.99
    (b)
    
    
    2/1/10 - 12/31/10Price swap
    
    
    1,250,000
    
    
    $
    5.55
    (b)
    
    
    3/1/10 - 12/31/10Price swap
    
    
    5,076,000
    
    
    $
    6.14
    (b)
    
    
    1/1/11 - 12/31/11Price swap
    
    
    300,000
    
    
    $
    6.54
    (b)
    
    
    1/1/12 - 12/31/12
 
 (a)
    
    The index prices for the oil price swaps are based on the NYMEX-West Texas Intermediate
monthly average futures price.(b)
    
    The index prices for the natural gas price swaps are based on
the NYMEX-Henry Hub last trading day futures price. 39




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##### Table of Contents



Second quarter 2010 commodity derivative contracts.
 Aggregate
    
    Index
    
    ContractVolume
    
    Price
    
    PeriodOil (volumes in Bbls):Price swap
    
    
    1,463,000
    
    
    $
    88.63
    (a)
    
    
    5/1/10 - 12/31/10Price swap
    
    
    1,344,000
    
    
    $
    92.25
    (a)
    
    
    1/1/11 - 12/31/11Price swap
    
    
    2,040,000
    
    
    $
    92.98
    (a)
    
    
    1/1/12 - 12/31/12
 
 (a)
    
    The index price for the oil price swap is based on the NYMEX-West Texas Intermediate
monthly average futures price. 40




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##### Table of Contents



Results of Operations
  Three Months Ended March 31,2010
    
    2009Production and operating data:Net production volumes:Oil (MBbl)
    
    
    2,170
    
    
    
    1,687Natural gas (MMcf)
    
    
    6,241
    
    
    
    4,955Total (MBoe)
    
    
    3,210
    
    
    
    2,513Average daily production volumes:Oil (Bbl)
    
    
    24,111
    
    
    
    18,744Natural gas (Mcf)
    
    
    69,344
    
    
    
    55,056Total (Boe)
    
    
    35,668
    
    
    
    27,922Average prices:Oil, without derivatives (Bbl)
    
    $
    74.99
    
    
    $
    38.51Oil, with derivatives (Bbl) (a)
    
    $
    70.32
    
    
    $
    59.01Natural gas, without derivatives (Mcf)
    
    $
    7.90
    
    
    $
    4.24Natural gas, with derivatives (Mcf) (a)
    
    $
    7.98
    
    
    $
    4.76Total, without derivatives (Boe)
    
    $
    66.04
    
    
    $
    34.22Total, with derivatives (Boe) (a)
    
    $
    63.04
    
    
    $
    49.00Operating costs and expenses per Boe:Lease operating expenses and workover costs
    
    $
    5.84
    
    
    $
    6.76Oil and natural gas taxes
    
    $
    5.59
    
    
    $
    3.10General and administrative
    
    $
    4.22
    
    
    $
    4.68Depreciation, depletion and amortization
    
    $
    16.77
    
    
    $
    20.20
 
 (a)
    
    Includes the effect of the cash settlements received from (paid on) commodity
derivatives not designated as hedges and reported in operating costs and expenses. The
following table reflects the amounts of cash settlements received from (paid on)
commodity derivatives not designated as hedges that were included in computing average
prices with derivatives and reconciles to the amount in gain (loss) on derivatives not
designated as hedges as reported in the consolidated statements of operations: Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Gain (loss) on derivatives not designated as hedges:Cash (payments on) receipts from oil derivatives
    
    $
    (10,133
    )
    
    $
    34,584Cash receipts from natural gas derivatives
    
    
    506
    
    
    
    2,540Cash payments on interest rate derivatives
    
    
    (1,213
    )
    
    
    Unrealized mark-to-market gain (loss) on commodity and interest rate
derivatives
    
    
    26,413
    
    
    
    (42,170
    )Gain (loss) on derivatives not designated as hedges
    
    $
    15,573
    
    
    $
    (5,046
    )
 41




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##### Table of Contents



Three Months Ended March 31,2010
    
    2009West
    
    Grayburg
    
    GrayburgWolfberry
    
    Jackson
    
    JacksonProduction and operating data:Net production volumes:Oil (MBbl)
    
    
    330
    
    
    
    409
    
    
    
    324Natural gas (MMcf)
    
    
    985
    
    
    
    1,147
    
    
    
    942Total (MBoe)
    
    
    494
    
    
    
    600
    
    
    
    481Average prices:Oil, without derivatives (Bbl)
    
    $
    76.76
    
    
    $
    75.38
    
    
    $
    36.88Natural gas, without derivatives (Mcf)
    
    $
    8.37
    
    
    $
    8.10
    
    
    $
    4.56Total, without derivatives (Boe)
    
    $
    67.94
    
    
    $
    66.86
    
    
    $
    33.77Production costs per Boe:Lease operating expenses including workovers
    
    $
    4.67
    
    
    $
    5.65
    
    
    $
    6.35Oil and natural gas taxes
    
    $
    4.53
    
    
    $
    5.74
    
    
    $
    2.96
 42




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##### Table of Contents



Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
 Oil and natural gas revenues.
 
    
    average realized oil price (excluding the effects of derivative activities) was
$74.99 per Bbl during the three months ended March 31, 2010, an increase of 95 percent
from $38.51 per Bbl during the three months ended March 31, 2009;
    
    total oil production was 2,170 MBbl for the three months ended March 31, 2010, an
increase of 483 MBbl (29 percent) from 1,687 MBbl for the three months ended March 31,
2009;
    
    average realized natural gas price (excluding the effects of derivative activities)
was $7.90 per Mcf during the three months ended March 31, 2010, an increase of 86
percent from $4.24 per Mcf during the three months ended March 31, 2009; and
    
    total natural gas production was 6,241 MMcf for the three months ended March 31,
2010, an increase of 1,286 MMcf (26 percent) from 4,955 MMcf for the three months ended
March 31, 2009.
 Production expenses.
 Three Months Ended March 31,2010
    
    
    2009Per
    
    
    
    
    
    
    Per(in thousands, except per unit amounts)
    
    Amount
    
    
    Boe
    
    
    Amount
    
    
    BoeLease operating expenses
    
    $
    18,376
    
    
    $
    5.72
    
    
    $
    16,568
    
    
    $
    6.59Taxes:Ad valorem
    
    
    2,955
    
    
    
    0.92
    
    
    
    1,502
    
    
    
    0.60Production
    
    
    14,998
    
    
    
    4.67
    
    
    
    6,275
    
    
    
    2.50Workover costs
    
    
    371
    
    
    
    0.12
    
    
    
    421
    
    
    
    0.17Total oil and natural gas production expenses
    
    $
    36,700
    
    
    $
    11.43
    
    
    $
    24,766
    
    
    $
    9.86
     43




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##### Table of Contents



Exploration and abandonments expense.
 Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Geological and geophysical
    
    $
    668
    
    
    $
    677Exploratory dry holes
    
    
    218
    
    
    
    1,421Leasehold abandonments and other
    
    
    409
    
    
    
    3,897Total exploration and abandonments
    
    $
    1,295
    
    
    $
    5,995
    Depreciation, depletion and amortization expense.
 Three Months Ended March 31,2010
    
    
    2009Per
    
    
    
    
    
    
    Per(in thousands, except per unit amounts)
    
    Amount
    
    
    Boe
    
    
    Amount
    
    
    BoeDepletion of proved oil and natural gas properties
    
    $
    52,767
    
    
    $
    16.44
    
    
    $
    49,777
    
    
    $
    19.81Depreciation of other property and equipment
    
    
    689
    
    
    
    0.21
    
    
    
    578
    
    
    
    0.23Amortization of intangible asset  operating rights
    
    
    387
    
    
    
    0.12
    
    
    
    393
    
    
    
    0.16Total depletion, depreciation and amortization
    
    $
    53,843
    
    
    $
    16.77
    
    
    $
    50,748
    
    
    $
    20.20Oil price used to estimate proved oil reserves at period end
    
    $
    66.13
    
    
    
    
    
    
    $
    44.63Natural gas price used to estimate proved natural gas reserves at period end
    
    $
    3.99
    
    
    
    
    
    
    $
    3.63
   44




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##### Table of Contents



Impairment of long-lived assets.
 General and administrative expenses.
 Three Months Ended March 31,2010
    
    
    2009Per
    
    
    
    
    
    
    Per(in thousands, except per unit amounts)
    
    Amount
    
    
    Boe
    
    
    Amount
    
    
    BoeGeneral and administrative expenses  recurring
    
    $
    11,121
    
    
    $
    3.45
    
    
    $
    9,914
    
    
    $
    3.95Non-recurring bonus paid to Henry Entities employees, see Note K
    
    
    2,468
    
    
    
    0.77
    
    
    
    2,561
    
    
    
    1.02Non-cash stock-based compensation  stock options
    
    
    1,009
    
    
    
    0.31
    
    
    
    1,028
    
    
    
    0.41Non-cash stock-based compensation  restricted stock
    
    
    1,822
    
    
    
    0.57
    
    
    
    897
    
    
    
    0.36Less: Third-party operating fee reimbursements
    
    
    (2,862
    )
    
    
    (0.88
    )
    
    
    (2,654
    )
    
    
    (1.06
    )Total general and administrative expenses
    
    $
    13,558
    
    
    $
    4.22
    
    
    $
    11,746
    
    
    $
    4.68
    45




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##### Table of Contents



(Gain) loss on derivatives not designated as hedges.
 Three Months Ended March 31,(in thousands)
    
    2010
    
    
    2009Cash payments (receipts):Commodity derivatives  oil
    
    $
    10,133
    
    
    $
    (34,584
    )Commodity derivatives  natural gas
    
    
    (506
    )
    
    
    (2,540
    )Financial derivatives  interest
    
    
    1,213
    
    
    
    Mark-to-market (gain) loss:Commodity derivatives  oil
    
    
    (1,438
    )
    
    
    39,037Commodity derivatives  natural gas
    
    
    (27,187
    )
    
    
    706Financial derivatives  interest
    
    
    2,212
    
    
    
    2,427(Gain) loss on derivatives not designated as hedges
    
    $
    (15,573
    )
    
    $
    5,046
 Interest expense.
 Three Months Ended March 31,(dollars in thousands)
    
    2010
    
    2009Interest expense
    
    $
    11,065
    
    
    $
    4,370Weighted average interest rate
    
    
    5.2
    %
    
    
    2.0
    %Weighted average debt balance
    
    $
    711.0
    
    
    $
    655.9
  Income tax provisions.
 Capital Commitments, Capital Resources and Liquidity
 Capital commitments.
 Oil and natural gas properties.
 46




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##### Table of Contents



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.
  47




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##### Table of Contents



Financial markets.
     Liquidity.
  48




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##### Table of Contents



Book capitalization and current ratio.
 Inflation and changes in prices.
 Critical Accounting Policies, Practices and Estimates
    Recent Accounting Pronouncements
  49




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
    Credit risk.
 Commodity price risk.
  Interest rate risk.
  50




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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, 2009
    
    $
    (64,332
    )
    
    $
    (2,501
    )
    
    $
    (66,833
    )Changes in fair values (b)
    
    
    18,998
    
    
    
    (3,425
    )
    
    
    15,573Contract maturities
    
    
    9,627
    
    
    
    1,213
    
    
    
    10,840Fair value of contracts outstanding at March 31, 2010
    
    $
    (35,707
    )
    
    $
    (4,713
    )
    
    $
    (40,420
    )
 
 (a)
    
    Represents the fair values of open derivative contracts subject to market
risk.(b)
    
    At inception, new derivative contracts entered into by us have no
intrinsic value. 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting.
 51




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 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 planJanuary 1, 2010 - January 31, 2010
    
    
    
    
    
    $
    
    
    
    
    February 1, 2010 - February 28, 2010
    
    
    4,678
    
    
    $
    46.75
    
    
    
    March 1, 2010 - March 31, 2010
    
    
    
    
    
    $
    
    
    
    
    
 
 (1)
    
    Represents shares that were withheld by us to satisfy tax withholding obligations of
certain officers that arose upon the lapse of restrictions on restricted stock. 52




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Exhibit3.1
    
    Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Companys Current Report on Form 8-K on
August 8, 2007, and incorporated herein by reference).3.2
    
    Amended and Restated Bylaws of Concho Resources Inc., as amended March 25, 2008 (filed as Exhibit 3.1 to
the Companys Current Report on Form 8-K on March 26, 2008, and incorporated herein by reference).4.1
    
    Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Companys Current Report on Form S-1/A on
July 5, 2007, and incorporated herein by reference).10.1
    
    Second Amendment to Amended and Restated Credit Agreement, dated April 26, 2010, by and among
Concho Resources Inc., JP Morgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K on April 29, 2010, 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. 53




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##### Table of Contents



SIGNATURES
  CONCHO RESOURCES INC.Date: May 7, 2010
    
    By
    
    /s/ Timothy A. Leach

Timothy A. LeachDirector, Chairman of the Board of Directors, Chief ExecutiveOfficer and President (Principal Executive Officer)By
    
    /s/ Darin G. Holderness

Darin G. HoldernessVice President, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)
 54




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit3.1
    
    Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Companys Current Report on Form 8-K on
August 8, 2007, and incorporated herein by reference).3.2
    
    Amended and Restated Bylaws of Concho Resources Inc., as amended March 25, 2008 (filed as Exhibit 3.1 to
the Companys Current Report on Form 8-K on March 26, 2008, and incorporated herein by reference).4.1
    
    Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Companys Current Report on Form S-1/A on
July 5, 2007, and incorporated herein by reference).10.1
    
    Second Amendment to Amended and Restated Credit Agreement, dated April 26, 2010, by and among
Concho Resources Inc., JP Morgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K on April 29, 2010, 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.