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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-33615

Concho Resources Inc.

(Exact name of registrant as specified in its charter)

Delaware		76-0818600
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)
550 West Texas Avenue, Suite 100
Midland, Texas		79701
(Address of principal executive offices)		(Zip code)

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Number of shares of the registrant’s common stock outstanding at August 3, 2009: 85,521,179 shares.

 

 

TABLE OF CONTENTS

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

 i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) that are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact included in this report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed below and in our Annual Report on Form 10-K for the year ended December 31, 2008 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, could affect our actual results and cause our actual results to differ materially from expectations, estimates, or assumptions expressed in, forecasted in, or implied in such forward-looking statements.

     Forward-looking statements may include statements about:

	•		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.

     You should not place undue reliance on these forward-looking statements. All forward-looking statements speak only as of the date of this report. We do not undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.

     Although we believe that our plans, objectives, expectations and intentions reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that they will be achieved. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

 ii

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

iii

Concho Resources Inc.

Consolidated Balance Sheets
Unaudited

		June 30,				December 31,
(in thousands, except share and per share data)		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	3,081			$	17,752
Accounts receivable, net of allowance for doubtful accounts:
Oil and natural gas			58,430				48,793
Joint operations and other			73,992				92,833
Related parties			174				314
Derivative instruments			26,272				113,149
Prepaid costs and other			5,330				5,942
Total current assets			167,279				278,783
Property and equipment, at cost:
Oil and natural gas properties, successful efforts method			2,885,275				2,693,574
Accumulated depletion			(413,252	)			(306,990	)
Total oil and natural gas properties, net			2,472,023				2,386,584
Other property and equipment, net			15,143				14,820
Total property and equipment, net			2,487,166				2,401,404
Deferred loan costs, net			13,988				15,701
Inventory			27,158				19,956
Intangible asset, net — operating rights			37,319				37,768
Noncurrent derivative instruments			31,438				61,157
Other assets			451				434
Total assets		$	2,764,799			$	2,815,203
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable:
Trade		$	15,837			$	7,462
Related parties			1,352				312
Other current liabilities:
Bank overdrafts			2,628				9,434
Revenue payable			31,262				22,286
Accrued and prepaid drilling costs			111,172				154,196
Derivative instruments			15,731				1,866
Deferred income taxes			3,300				37,205
Other current liabilities			38,149				38,057
Total current liabilities			219,431				270,818
Long-term debt			660,000				630,000
Noncurrent derivative instruments			17,656				—
Deferred income taxes			565,217				573,763
Asset retirement obligations and other long-term liabilities			12,940				15,468
Commitments 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				85
Additional paid-in capital			1,020,060				1,009,025
Retained earnings			269,726				316,169
Treasury 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				1,325,154
Total liabilities and stockholders’ equity		$	2,764,799			$	2,815,203

The accompanying notes are an integral part of these consolidated financial statements.

Concho Resources Inc.

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

Concho Resources Inc.

										Additional																Total
		Common Stock								Paid-in				Retained				Treasury Stock								Stockholders’
(in thousands)		Shares				Amount				Capital				Earnings				Shares				Amount				Equity
BALANCE AT DECEMBER 31, 2008			84,829			$	85			$	1,009,025			$	316,169				3			$	(125	)		$	1,325,154
Net loss			—				—				—				(46,443	)			—				—				(46,443	)
Stock options exercised			446				1				3,930				—				—				—				3,931
Stock-based compensation for restricted stock			257				—				2,200				—				—				—				2,200
Cancellation of restricted stock			(2	)			—				—				—				—				—				—
Stock-based compensation for stock options			—				—				1,913				—				—				—				1,913
Excess tax benefits related to stock-based compensation			—				—				2,992				—				—				—				2,992
Purchase 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.

Concho Resources Inc.

		Six Months Ended June 30,
(in thousands)		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(46,443	)		$	7,945
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization			103,150				43,294
Impairments of long-lived assets			8,555				69
Accretion of discount on asset retirement obligations			579				301
Exploration expense, including dry holes			6,294				1,147
Non-cash compensation expense			4,113				3,029
Bad debt expense			—				1,799
Deferred 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				119,634
Dedesignated cash flow hedges reclassified from accumulated other comprehensive income			—				222
Other non-cash items			1,686				558
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			(18,401	)			(12,003	)
Prepaid costs and other			612				793
Inventory			(6,786	)			(7,243	)
Accounts payable			9,415				(10,209	)
Revenue payable			8,976				7,718
Other current liabilities			(562	)			3,087
Net cash provided by operating activities			118,232				162,948
CASH 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				1,034
Settlements 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				13,000
Payments of long-term debt			(181,650	)			(39,500	)
Exercise of stock options			3,931				2,373
Excess tax benefit from stock-based compensation			2,992				2,146
Proceeds from repayment of employee notes			—				333
Payments for loan origination costs			—				(1,001	)
Purchase of treasury stock			(192	)			(125	)
Bank overdrafts			(6,806	)			3,245
Net cash provided by (used in) financing activities			29,925				(19,529	)
Net increase (decrease) in cash and cash equivalents			(14,671	)			1,292
Cash and cash equivalents at beginning of period			17,752				30,424
Cash and cash equivalents at end of period		$	3,081			$	31,716
SUPPLEMENTAL CASH FLOWS:
Cash paid for interest and fees, net of $18 and $840 capitalized interest		$	6,911			$	9,918
Cash paid for income taxes		$	4,232			$	650

The accompanying notes are an integral part of these consolidated financial statements.

Concho Resources Inc.

Note A. Organization and nature of operations

     Concho Resources Inc. (the “Company”) is a Delaware corporation formed on February 22, 2006. The Company’s principal business is the acquisition, development, exploitation and exploration of oil and natural gas properties in the Permian Basin region of Southeastern New Mexico and West Texas.

Note B. Summary of significant accounting policies

     Principles of consolidation. The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated.

     Use of estimates in the preparation of financial statements. Preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Depletion of oil and natural gas properties are determined using estimates of proved oil and natural gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Other significant estimates include, but are not limited to, asset retirement obligations, fair value of derivative financial instruments, purchase price allocations for business and oil and natural gas property acquisitions and fair value of stock-based compensation.

     Interim financial statements. The accompanying consolidated financial statements of the Company have not been audited by the Company’s independent registered public accounting firm, except that the consolidated balance sheet at December 31, 2008 is derived from audited consolidated financial statements. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments necessary to present fairly the Company’s financial position at June 30, 2009, its results of operations for the three and six months ended June 30, 2009 and 2008, and its cash flows for the six months ended June 30, 2009 and 2008. All such adjustments are of a normal recurring nature. In preparing the accompanying consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.

     Certain disclosures have been condensed or omitted from these consolidated financial statements. Accordingly, these consolidated financial statements should be read with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

     Deferred loan costs. Deferred loan costs are stated at cost, net of amortization, which is computed using the effective interest and straight-line methods. The Company had deferred loan costs of $14.0 million and $15.7 million, net of accumulated amortization of $6.6 million and $4.9 million, at June 30, 2009 and December 31, 2008, respectively.

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     Future amortization expense of deferred loan costs at June 30, 2009 is as follows:

(in thousands)		Total
Remaining 2009		$	1,713
2010			3,426
2011			3,426
2012			3,426
2013			1,997
Total		$	13,988

     Intangible assets. The Company has capitalized certain operating rights acquired in an acquisition, see Note D. The gross operating rights of approximately $38.7 million, which have no residual value, are amortized over the estimated economic life of approximately 25 years. Impairment will be assessed if indicators of potential impairment exist or when there is a material change in the remaining useful economic life. Amortization expense for the three and six months ended June 30, 2009 was approximately $0.4 million and $0.8 million, respectively. The following table reflects the estimated aggregate amortization expense at June 30, 2009 for each of the periods presented below:

(in thousands)		Total
Remaining 2009		$	775
2010			1,550
2011			1,550
2012			1,550
2013			1,550
Thereafter			30,344
Total		$	37,319

     Oil and natural gas sales and imbalances. Oil and natural gas revenues are recorded at the time of delivery of such products to pipelines for the account of the purchaser or at the time of physical transfer of such products to the purchaser. The Company follows the sales method of accounting for oil and natural gas sales, recognizing revenues based on the Company’s share of actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas imbalances are generated on properties for which two or more owners have the right to take production “in-kind” and, in doing so, take more or less than their respective entitled percentage. Imbalances are tracked by well, but the Company does not record any receivable from or payable to the other owners unless the imbalance has reached a level at which it exceeds the remaining reserves in the respective well. If reserves are insufficient to offset the imbalance and the Company is in an overtake position, a liability is recorded for the amount of shortfall in reserves valued at a contract price or the market price in effect at the time the imbalance is generated. If the Company is in an undertake position, a receivable is recorded for an amount that is reasonably expected to be received, not to exceed the current market value of such imbalance.

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     The following table reflects the Company’s natural gas imbalance positions at June 30, 2009 and December 31, 2008 as well as amounts reflected in oil and natural gas production expense for the three and six months ended June 30, 2009 and 2008:

		June 30,				December 31,
(dollars in thousands)		2009				2008
Natural gas imbalance receivable (included in other assets)		$	423			$	406
Undertake position (Mcf)			(94,102	)			(90,321	)
Natural gas imbalance liability (included in asset retirement obligations and other long-term liabilities)		$	449			$	472
Overtake position (Mcf)			79,408				85,698

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Value 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. Treasury stock purchases are recorded at cost. Upon reissuance, the cost of treasury shares held is reduced by the average purchase price per share of the aggregate treasury shares held.

     General and administrative expense. The Company receives fees for the operation of jointly owned oil and natural gas properties and records such reimbursements as reductions of general and administrative expense. Such fees totaled approximately $2.8 million and $0.3 million for the three months ended June 30, 2009 and 2008, respectively, and $5.4 million and $0.5 million for the six months ended June 30, 2009 and 2008, respectively.

     Reclassifications. Certain prior period amounts have been reclassified to conform to the 2009 presentation. These reclassifications had no impact on net income (loss), total stockholders’ equity or cash flows.

     Recent accounting pronouncements. In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”), which replaces FASB Statement No. 141. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS No. 141(R) also establishes disclosure requirements that will enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for acquisitions that occur in an entity’s fiscal year that begins after December 15, 2008. The Company adopted SFAS No. 141(R) effective January 1, 2009. There has been no impact on the Company’s consolidated financial statements, as it has not entered into any significant business combinations during 2009.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS No. 160”). SFAS No. 160 requires that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS No. 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. This statement is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008. The Company adopted SFAS No. 160 effective January 1, 2009, with no impact on the Company’s consolidated financial statements.

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS No. 161”), which amends and expands the interim and annual disclosure requirements of SFAS No. 133 to provide an enhanced understanding of an entity’s use of derivative instruments, how they are accounted for under SFAS No. 133 and their effect on the entity’s financial position, financial performance and cash flows. The provisions of SFAS No. 161 are effective as of January 1, 2009. The Company adopted SFAS No. 161 effective January 1, 2009, with no significant impact on the Company’s consolidated financial statements, other than additional disclosures which are set forth below in Notes H and I.

     In April 2008, the FASB issued FASB Staff Position (“FSP”) No. SFAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP SFAS No. 142-3”). FSP SFAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). The intent of FSP SFAS No. 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R and other applicable accounting literature. FSP SFAS No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. The Company adopted FSP SFAS No. 142-3 effective January 1, 2009, with no significant impact on the Company’s consolidated financial statements.

     In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”), which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States of America. SFAS No. 162 arranges these sources of GAAP in a hierarchy for users to apply accordingly. This statement became effective for the Company on November 15, 2008. The adoption of SFAS No. 162 did not have a significant impact on the Company’s consolidated financial statements. In June 2009, this statement was replaced with SFAS No. 168, The FASB Accounting Standards Codification™ (“Codification”) and the Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 168”). Once the Codification is in effect, all of its content will carry the same level of authority, effectively superseding SFAS No. 162. In other words, the GAAP hierarchy will be modified to include only two levels of GAAP: authoritative and non authoritative. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not expect the adoption of SFAS No. 168 to have an impact on its consolidated financial statements.

     In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (“FSP EITF 03-6-1”) which provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, need to be included in the earnings allocation in computing earnings per share under the two class method. FSP EITF 03-6-1 was effective for the Company on January 1, 2009. There was no impact on the Company’s consolidated financial statements.

     In April 2009, the FASB issued FSP SFAS No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This FSP amends and clarifies SFAS No. 141(R) to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This FSP is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company has not made any acquisitions during 2009, and as such, the adoption of this statement on January 1, 2009 did not have a significant impact.

     In April 2009, the FASB issued FSP SFAS No. 107-1 and APB Opinion No. 28-1, Interim Disclosures about Fair Value of Financial Instrument (“FSP SFAS No. 107-1”). This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. As of June 15, 2009, the Company adopted the provisions of FSP SFAS No. 107-1 related to the fair value of financial

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

instruments. The adoption of the provisions of FSP SFAS No. 107-1 did not have a material effect on the financial condition or results of operations of the Company. See Note H for additional disclosures required by FSP SFAS No. 107-1.

     In April 2009, the FASB issued FSP SFAS No. 157-4, 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 (“FSP SFAS No. 157-4”). This FSP:

	•		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.

     FSP SFAS No. 157-4 must be applied prospectively and retrospective application is not permitted. FSP SFAS No. 157-4 is effective for interim and annual periods ending after June 15, 2009. As of June 15, 2009, the Company adopted the provisions of FSP SFAS No. 157-4 related to assets and liabilities that are measured at fair value on a recurring and nonrecurring basis. The adoption of the provisions of FSP SFAS No. 157-4 did not have a material effect on the financial condition or results of operations of the Company. See Note H for additional information regarding the Company’s adoption of FSP SFAS No. 157-4.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”) which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. In particular, SFAS No. 165 sets forth:

	•		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.

     In accordance with this Statement, a reporting entity should apply the requirements to interim or annual financial periods ending after June 15, 2009. See Note P.

     In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets (“SFAS No. 166”), which amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

flows; and a transferor’s continuing involvement in transferred financial assets. SFAS No. 166 must be applied as of the beginning of a reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. SFAS No. 166 must be applied to transfers occurring on or after the effective date. The Company does not expect the adoption of SFAS No. 166 to have an impact on its consolidated financial statements.

     Recent developments in reserves reporting. In December 2008, the United States Securities and Exchange Commission (the “SEC”) released Final Rule, Modernization of Oil and Gas Reporting (the “Reserve Ruling”). The Reserve Ruling revises oil and gas reporting disclosures. The Reserve Ruling permits the use of new technologies to determine proved reserves estimates if those technologies have been demonstrated empirically to lead to reliable conclusions about reserve volume estimates. The Reserve Ruling will also allow, but not require, companies to disclose their probable and possible reserves to investors in documents filed with the SEC. In addition, the new disclosure requirements require companies to: (i) report the independence and qualifications of its reserves preparer or auditor; (ii) file reports when a third party is relied upon to prepare reserves estimates or conduct a reserves audit; and (iii) report oil and gas reserves using an average price based upon the prior 12-month period rather than a year-end price. The Reserve Ruling becomes effective for fiscal years ending on or after December 31, 2009. The Company is currently assessing the impact that adoption of the provisions of the Reserve Ruling will have on its financial position, results of operations and disclosures.

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

Note C. Exploratory well costs

     The Company capitalizes exploratory well costs until a determination is made that the well has either found proved reserves or that it is impaired. The capitalized exploratory well costs are presented in unproved properties in the consolidated balance sheets. If the exploratory well is determined to be impaired, the well costs are charged to expense.

     The following table reflects the Company’s capitalized exploratory well activity during the three and six months ended June 30, 2009:

		Three Months Ended				Six Months Ended
(in thousands)		June 30, 2009				June 30, 2009
Beginning capitalized exploratory well costs		$	2,536			$	25,553
Additions to exploratory well costs pending the determination of proved reserves			91,305				93,842
Reclassifications 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

     The following table provides an aging, at June 30, 2009 and December 31, 2008, of capitalized exploratory well costs based on the date drilling was completed:

		June 30,				December 31,
(in thousands)		2009				2008
Wells in drilling progress		$	533			$	7,765
Capitalized exploratory well costs that have been capitalized for a period of one year or less			6,771				17,788
Capitalized exploratory well costs that have been capitalized for a period greater than one year			—				—
Total capitalized exploratory well costs		$	7,304			$	25,553

     At June 30, 2009, the Company had seven gross exploratory wells waiting on completion and two exploratory wells drilling, all of which were in the New Mexico Permian area.

Note D. Acquisitions

     Henry Entities acquisition. On July 31, 2008, the Company closed the acquisition of Henry Petroleum LP and certain entities affiliated with Henry Petroleum LP (the “Henry Entities”) and additional non-operated interests in oil and natural gas properties from persons affiliated with the Henry Entities. In August 2008 and September 2008, the Company acquired additional non-operated interests in oil and natural gas properties from persons affiliated with the Henry Entities. The assets acquired in the Henry Entities acquisition, including the additional non-operated interests, are referred to as the “Henry Properties.” The Company paid $583.5 million in cash for the Henry Properties acquisition.

     The cash paid for the Henry Properties acquisition was funded with (i) borrowings under the Company’s credit facility and (ii) proceeds from a private placement of approximately 8.3 million shares of the Company’s common stock.

     The Henry Properties acquisition is being accounted for using the purchase method of accounting for business combinations. Under the purchase method of accounting, the Company recorded the Henry Properties’ assets and liabilities at fair value. The

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

purchase price of the acquired Henry Properties’ net assets is based on the total value of the cash consideration. The initial purchase price allocation is preliminary and subject to adjustment primarily due to resolution of certain tax matters. Any future adjustments to the allocation of the total purchase price are not anticipated to be material to the Company’s consolidated financial statements.

     The following tables represent the preliminary allocation of the total purchase price of the Henry Properties to the acquired assets and liabilities of the Henry Properties and the consideration paid for the Henry Properties. The allocation represents the fair values assigned to each of the assets acquired and liabilities assumed:

(in thousands)
Fair value of Henry Properties’ net assets:
Current assets, net of cash acquired of $19,049 (a)		$	86,005
Proved oil and natural gas properties			593,984
Unproved oil and natural gas properties			233,492
Other long-term assets			7,392
Intangible assets — operating rights			38,740
Total assets acquired			959,613
Current 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		$	583,503
Consideration paid for Henry Properties’ net assets:
Cash consideration paid, net of cash acquired of $19,049		$	577,853
Acquisition costs (b)			5,650
Total purchase price		$	583,503

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     The following unaudited pro forma combined condensed financial data for the three and six months ended June 30, 2008 was derived from the historical financial statements of the Company and Henry Properties giving effect to the acquisition as if it had occurred on January 1, 2008. The unaudited pro forma combined condensed financial data has been included for comparative purposes only and is not necessarily indicative of the results that might have occurred had the Henry Properties acquisition taken place as of the date indicated and is not intended to be a projection of future results.

		Three Months Ended			Six Months Ended
(in thousands, except per share data)		June 30, 2008			June 30, 2008
Operating revenues		$	185,095			$	339,519
Net income		$	5,941			$	20,483
Earnings per common share:
Basic		$	0.07			$	0.24
Diluted		$	0.07			$	0.24

Note E. Asset retirement obligations

     The Company’s asset retirement obligations represent the estimated present value of the estimated cash flows the Company will incur to plug, abandon and remediate its producing properties at the end of their production lives, in accordance with applicable state laws. The Company does not provide for a market risk premium associated with asset retirement obligations because a reliable estimate cannot be determined. The Company has no assets that are legally restricted for purposes of settling asset retirement obligations.

     The following table summarizes the Company’s asset retirement obligations (“ARO”) recorded during the three and six months ended June 30, 2009 and 2008:

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2009				2008				2009				2008
Asset retirement obligations, beginning of period		$	18,254			$	8,795			$	16,809			$	9,418
Liabilities incurred from new wells			102				275				270				309
Accretion expense			301				148				579				301
Disposition of wells sold			—				—				(142	)			—
Liabilities settled upon plugging and abandoning wells			(343	)			—				(353	)			—
Revision of estimates			(3,928	)			1,138				(2,777	)			328
Asset retirement obligations, end of period		$	14,386			$	10,356			$	14,386			$	10,356

Note F. Stockholders’ equity

     Common stock private placement. On June 5, 2008, the Company entered into a common stock purchase agreement with certain unaffiliated third-party investors to sell certain shares of the Company’s common stock in a private placement (the “Private Placement”) contemporaneous with the closing of the Henry Properties acquisition. On July 31, 2008, the Company issued 8,302,894 shares of its common stock at $30.11 per share. The Private Placement resulted in net proceeds of approximately $242.4 million to the Company, after payment of approximately $7.6 million for the fee paid to the placement agent.

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     Treasury stock. On June 12, 2008, the restrictions on certain restricted stock awards issued to five of the Company’s executive officers lapsed. Immediately upon the lapse of restrictions, these executive officers became liable for certain federal income taxes on the value of such shares. In accordance with the Company’s 2006 Stock Incentive Plan and the applicable restricted stock award agreements, four of such officers elected to deliver shares of the Company’s common stock to the Company to satisfy such tax liability, and the Company acquired 3,142 shares to be held as treasury stock in the approximate amount of $125,000.

     During the second quarter of 2009, the restrictions on certain restricted stock awards issued to five of the Company’s executive officers lapsed. Immediately upon the lapse of restrictions, these executive officers became liable for certain federal income taxes on the value of such shares. In accordance with the Company’s 2006 Stock Incentive Plan and the applicable restricted stock award agreements, all of such officers elected to deliver shares of the Company’s common stock to the Company to satisfy such tax liability, and the Company acquired 6,199 shares to be held as treasury stock in the approximate amount of $192,000.

Note G. Incentive plans

     Defined contribution plan. The Company sponsors a 401(k) defined contribution plan for the benefit of all employees and maintains certain other acquired plans. The Company matches 100 percent of employee contributions, not to exceed 6 percent of the employee’s annual salary. The Company contributions to the plans for the three months ended June 30, 2009 and 2008 were approximately $0.2 million and $0.1 million, respectively, and $0.5 million and $0.3 million for the six months ended June 30, 2009 and 2008, respectively.

     Stock incentive plan. The Company’s 2006 Stock Incentive Plan (together with applicable option agreements and restricted stock agreements, the “Plan”) provides for granting stock options and restricted stock awards to employees and individuals associated with the Company. The following table shows the number of awards available under the Company’s Plan at June 30, 2009:

		Number of
		Common Shares
Approved and authorized awards			5,850,000
Stock 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. All restricted shares are treated as issued and outstanding in the accompanying consolidated balance sheets. If an employee terminates employment prior to the lapse date, restricted shares awarded to such employee are forfeited and cancelled and are no longer considered issued and outstanding. A summary of the Company’s restricted stock awards activity for the six months ended June 30, 2009 is presented below:

		Number of				Grant Date
		Restricted				Fair Value
		Shares				Per Share
Outstanding at December 31, 2008			407,351
Shares granted			257,398			$	25.14
Shares cancelled / forfeited			(2,420	)
Lapse of restrictions			(169,519	)
Outstanding at June 30, 2009			492,810

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     A summary of the impact on the consolidated statements of operations for the Company’s restricted stock awards during the three and six months ended June 30, 2009 and 2008 is presented below:

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2009				2008				2009			2008
Stock-based compensation expense related to restricted stock		$	1,303			$	468			$	2,200			$	862
Income tax benefit related to restricted stock		$	586			$	187			$	927			$	341
Deductions in current taxable income related to restricted stock		$	3,989			$	771			$	4,367			$	1,200

     Stock option awards. A summary of the Company’s stock option award activity under the Plan for the six months ended June 30, 2009 is presented below:

						Weighted
						Average
		Number of				Exercise
		Options				Price
Outstanding at December 31, 2008			2,731,324			$	12.46
Options granted			117,801			$	20.40
Options exercised			(445,789	)		$	8.82
Outstanding at June 30, 2009			2,403,336			$	13.53
Vested at end of period			1,637,752			$	10.38
Vested and exercisable at end of period			812,760			$	12.62

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     The following table summarizes information about the Company’s vested and exercisable stock options outstanding at June 30, 2009:

										Weighted
										Average				Weighted
						Number of				Remaining				Average
						Stock				Contractual				Exercise				Intrinsic
						Options				Life				Price				Value
																		(in thousands)
Vested options:
June 30, 2009:
Exercise price		$	8.00				1,183,214			2.64 years				$	8.00			$	24,481
Exercise price		$	12.00				122,516			4.85 years				$	12.00				2,045
Exercise price		$	15.35				210,000			6.98 years				$	15.35				2,800
Exercise price		$	21.85				103,500			8.67 years				$	21.85				708
Exercise price		$	31.33				18,522			8.90 years				$	31.33				—
							1,637,752							$	10.38			$	30,034
Vested and exercisable options:
June 30, 2009:
Exercise price		$	8.00				394,183			3.93 years				$	8.00			$	8,156
Exercise price		$	12.00				86,555			6.04 years				$	12.00				1,445
Exercise price		$	15.35				210,000			6.98 years				$	15.35				2,800
Exercise price		$	21.85				103,500			8.67 years				$	21.85				708
Exercise price		$	31.33				18,522			8.90 years				$	31.33				—
							812,760							$	12.62			$	13,109

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     The following table summarizes information about stock-based compensation for stock options for the three months ended June 30, 2009 and 2008:

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2009				2008				2009				2008
Grant date fair value for awards during the period:
Time vesting options		$	—			$	—			$	—			$	183
Stock option grants under the Plan			—				794				1,454				5,090
Total		$	—			$	794			$	1,454			$	5,273
Stock-based compensation expense from stock options:
Time vesting options		$	70			$	35			$	141			$	65
Performance vesting options- Officers			—				133				71				284
Stock option grants under the Plan			815				1,094				1,701				1,818
Total		$	885			$	1,262			$	1,913			$	2,167
Income taxes and other information:
Income tax benefit related to stock options		$	415			$	504			$	806			$	858
Deductions in current taxable income related to stock options exercised		$	4,117			$	3,132			$	7,157			$	5,338

     In calculating compensation expense for options granted during the six months ended June 30, 2009, the Company estimated the fair value of each grant using the Black-Scholes option-pricing model. Assumptions utilized in the model are shown below:

Risk-free interest rate			2.46	%
Expected term (years)			6.25
Expected volatility			63.40	%
Expected dividend yield			—

     As permitted by Staff Accounting Bulletin No. 110, Share-Based Payment, the Company used the simplified method to calculate the expected term for stock options granted during the three and six months ended June 30, 2009, since it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its shares of common stock have been publicly traded. Expected volatilities are based on a combination of historical and implied volatilities of comparable companies.

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     Future stock-based compensation expense. Future stock-based compensation expense at June 30, 2009 is summarized in the table below:

		Restricted				Stock
(in thousands)		Stock				Options				Total
Remaining 2009		$	2,333			$	1,423			$	3,756
2010			3,431				1,694				5,125
2011			2,159				706				2,865
2012			643				166				809
2013			24				14				38
Total		$	8,590			$	4,003			$	12,593

Note H. Disclosures about fair value of financial instruments

     The Company adopted SFAS No. 157, Fair Value Measurements, (“SFAS No. 157”) effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. SFAS No. 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. In February 2008, the FASB issued FSP No. 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS No. 157 by one year for nonfinancial assets and liabilities. As of January 1, 2009, the Company adopted the provisions of SFAS 157 related to the Company’s nonfinancial assets and liabilities, including nonfinancial assets and liabilities measured at fair value in a business combination; impaired long-lived assets; and initial recognition of asset retirement obligations. As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

	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.

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

     The following represents information about the estimated fair values of the Company’s financial instruments:

     Cash and cash equivalents, accounts receivable, other current assets, accounts payable, interest payable and other current liabilities. The carrying amounts approximate fair value due to the short maturity of these instruments.

     Line of credit. The carrying amount of borrowings outstanding under the Company’s credit facility approximates fair value, because the instrument bears interest at variable market rates.

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. The fair value of the Company’s derivative instruments are estimated by management considering various factors, including closing exchange and over-the-counter quotations and the time value of the underlying commitments. As required by SFAS No. 157, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The following table (i) summarizes the valuation of each of the Company’s financial instruments by SFAS No. 157 pricing levels and (ii) summarizes the gross fair value by the appropriate balance sheet classification, in accordance with SFAS No. 161, even when the derivative instruments are subject to netting arrangements and qualify for net presentation in the Company’s consolidated balance sheets at June 30, 2009 and December 31, 2008:

		Fair value measurements using
		Quoted				Significant								Total
		prices				other				Significant				carrying value
		in active				observable				unobservable				at
		markets				inputs				inputs				June 30,
(in thousands)		(Level 1)				(Level 2)				(Level 3)				2009
Assets (1)
Current: (a)
Commodity derivative price swap contracts		$	—			$	26,408			$	—			$	26,408
Commodity derivative basis swap contracts			—				—				—				—
Interest rate derivative swap contracts			—				—				—				—
Commodity derivative price collar contracts			—				—				18,856				18,856
			—				26,408				18,856				45,264
Noncurrent: (b)
Commodity derivative price swap contracts			—				43,604				—				43,604
Commodity derivative basis swap contracts			—				—				—				—
Interest rate derivative swap contracts			—				3,541				—				3,541
Commodity derivative price collar contracts			—				—				—				—
			—				47,145				—				47,145
Liabilities (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															13,782
Total financial assets (liabilities)														$	24,323

Concho Resources Inc.
Condensed Notes to Consolidated Financial Statements
June 30, 2009
Unaudited

		Fair value measurements using
		Quoted				Significant								Total
		prices				other				Significant				carrying value
		in active				observable				unobservable				at
		markets				inputs				inputs				December 31,
(in thousands)		(Level 1)				(Level 2)				(Level 3)				2008
Assets (1)
Current: (a)
Commodity derivative price swap contracts		$	—			$	64,162			$	—			$	64,162
Commodity derivative basis swap contracts			—				—				—				—
Interest rate derivative swap contracts			—				—				—				—
Commodity derivative price collar contracts			—				—				49,562				49,562
			—				64,162				49,562				113,724
Noncurrent: (b)
Commodity derivative price swap contracts			—				60,995				—				60,995
Commodity derivative basis swap contracts			—				—				—				—
Interest rate derivative swap contracts			—				678				—				678
Commodity derivative price collar contracts			—				—				—				—
			—				61,673				—				61,673
Liabilities (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															61,157
Total financial assets (liabilities)														$	172,440