PrimeEnergy Resources Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. PrimeEnergy is an independent U.S. oil and natural gas producer, with operations primarily in Texas and Oklahoma, and also operates field services. Financial statements are unaudited; amounts below are in millions of dollars unless otherwise noted.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $35.4 | $39.3 | $87.6 | $100.7 |
| Income from operations | $13.1 | $18.3 | $28.2 | $47.3 |
| Net income | $10.7 | $13.2 | $22.2 | $35.3 |
| Basic / diluted EPS | $5.84 / $4.13 | $6.79 / $4.88 | $11.95 / $8.49 | $17.95 / $12.96 |
| Operating cash flow | Not provided by quarter | $70.7 | $47.3 |
- Nine-month oil and gas sales fell 26.3% to $75.7 million. Oil volume rose 8.1%, gas volume 12.6%, and NGL volume 24.1%, but average realized prices declined: oil to $76.14/bbl from $100.39, gas to $1.97/Mcf from $6.01, and NGLs to $20.18/bbl from $37.54. Q3 oil and gas sales declined 5.7%; higher oil volumes partly offset lower prices and lower gas and NGL sales.
- Nine-month net income margin was approximately 25.4%, compared with 35.0% in 2022. Income also reflected asset-sale gains and derivative results: the company recorded $8.2 million of gains on asset sales and a $0.4 million net derivative gain in 2023, versus $15.3 million and a $12.1 million derivative loss, respectively, in 2022.
- At September 30, cash was $19.8 million, current assets $37.6 million and current liabilities $41.7 million. The resulting current ratio was about 0.90. The balance sheet showed no bank debt, versus $11.0 million at year-end 2022; the $65 million borrowing base was undrawn. The company reported covenant compliance and expected to remain compliant over the next 12 months.
- Operating cash flow of $70.7 million exceeded the prior-year $47.3 million. Investing cash outflow was $59.6 million, including $67.1 million of capital expenditures, versus $8.0 million of capital expenditures in the prior-year period. Financing outflow was $17.8 million, including $11.3 million of debt and other obligation repayments and $6.6 million of share repurchases. Cash declined from $26.5 million at year-end to $19.8 million.
Material changes and operating activity
- Despite increased production volumes, lower commodity prices drove down year-to-date oil, gas and NGL revenue. Production costs were $21.2 million, slightly above 2022; DD&A increased to $22.9 million, while general and administrative expense fell to $8.1 million from $11.5 million.
- The company said it had brought 25 horizontal wells on production during 2023 through the third quarter and invested approximately $78 million in those wells and related facilities. It acquired interests in wells and acreage in Reagan County, Texas, and sold non-core acreage and other interests. In Oklahoma, it divested interests in 39 wells, reducing estimated future plugging liability by about $1.5 million.
- Equity increased to $156.0 million from $140.4 million at year-end 2022. The company repurchased 72,500 shares during the first nine months for $6.6 million; 1,828,500 shares were outstanding at September 30.
Outlook, risks and contingencies
- This filing does not provide formal earnings or production guidance. Management described substantial planned drilling: about $27 million for 18 wells then in progress, approximately $84 million for 34 expected wells, and about $48 million for 12 additional wells expected to begin drilling in Q1 2024. Management estimated total commitments of approximately $159 million for wells expected to spud by the end of Q1 2024, and roughly $260 million for 90 wells over the next two years; its broader multi-year development estimate was about $400 million. These are plans and estimates, dependent on partner schedules, costs, cash flow and financing availability.
- Management identified commodity-price and demand volatility, production and reserve uncertainty, operating and service costs, inflation and supply-chain constraints, permitting and regulatory changes, transportation and processing access, environmental and weather exposure, counterparty and capital availability, and drilling execution as risks. The borrowing base is subject to semiannual redetermination; the next review was scheduled for December 2023. The facility is secured by substantially all oil and gas properties.
- The company said it did not intend to enter new commodity derivative contracts unless required by its credit facility. Existing contracts had been settled or terminated by March 31, 2023. Environmental and ordinary-course legal matters were not expected by management to have a material adverse effect; the filing reports no legal proceedings. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether realized oil, gas and NGL prices and production volumes support the planned capital program and expected returns.
- Actual drilling costs, timing, partner participation and funding for the stated $159 million near-term commitments and broader development plans.
- Borrowing-base outcome at the scheduled December 2023 review and compliance with credit-facility covenants.
- Cash conversion and sustainability of operating cash flow, particularly given the substantial increase in capital expenditures and lower year-to-date earnings.
- The effect of acquisitions, asset sales, well divestitures and plugging obligations on future production, reserves and retirement liabilities.
- Reserve estimates and values are primarily year-end 2022 figures in this filing; interim updated reserve values are not provided.