Concho Resources will increase its capital spending programme by US$1 billion for 2019 despite takeaway capacity constraints in the Permian Basin, where it became the biggest pure-play company in July on its acquisition of RSP Permian.
In its third-quarter results, Concho revealed that it was targeting capital expenditures for 2019 of US$3.4-3.6 billion, 80% of which would be allocated to “large-scale” projects. In 2018, two-thirds of the company’s US$2.55 billion capital spending programme was directed towards such large-scale projects.
Concho’s oil production is forecast to grow by over 25% year on year from the fourth quarter of 2018 to the same period of 2019. The company also expects compound annual production growth rates of 30% and 25% from 2018 to 2020 respectively.
In an earnings call, Concho’s chairman and CEO, Tim Leach, said the company’s ambitious projects had been made possible by its discipline in recent years.
“These efforts position us well for the next stage of our company, which includes delivering high-margin oil growth and initiating a return-of-capital strategy to our shareholders,” commented Leach. “We are a growth company, and our platform for delivering growth, demonstrating the benefits of scale and enhancing shareholder value, has never been better.”
However, most companies in the Permian are feeling the pain of pipeline constraints. Infrastructure is not being developed at the same rate as rising output, preventing oil and gas from reaching customers and export markets, weakening prices and slowing growth overall.
Concho is one of the exceptions, holding contracts that cover all or most of its anticipated production for the coming year. But questions remain over whether this will still be true when the latest growth projections are taken into account.
The pipeline bottlenecks are anticipated to continue suffocating growth in the Permian until at least the late 2019, when considerable new takeaway capacity is due to come online.