PrimeEnergy Resources Corporation (NASDAQ: PNRG) — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report. The company is an independent U.S. oil and natural gas producer and operator, with properties primarily in Texas and Oklahoma, plus well-servicing operations.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $79.6 million | $58.4 million |
| Oil, gas and NGL sales | $73.1 million | $37.0 million |
| Net income (loss) attributable to PrimeEnergy | $2.1 million; $1.05 basic EPS | ($2.3 million); ($1.16) basic EPS |
| Net cash from operating activities | $28.6 million | $16.4 million |
| Capital expenditures, including exploration | $20.7 million | $10.5 million |
| Operating income (loss) | $5.0 million | ($1.0 million) |
- Oil and gas sales rose 97.8%, principally from higher realized prices. Average unhedged prices increased to $68.39/bbl for oil, $26.97/bbl for NGLs and $3.53/Mcf for gas. Production was comparatively stable for oil but declined 4.9% for NGLs and 4.3% for gas.
- Field-service income increased 6.3% to $11.8 million. Lease operating expense rose 20.9% to $27.8 million, while field-service expense rose 28.9% to $11.6 million. G&A fell 30.7% to $10.4 million, reflecting cost reductions.
- Derivative instruments produced a net $10.0 million loss in 2021, versus a $6.0 million gain in 2020, including realized and unrealized results. Reported total revenue includes these derivative effects.
- Cash and cash equivalents were $10.3 million at year-end, versus $1.0 million a year earlier. Current assets were $25.3 million and current liabilities $21.7 million, or approximately $3.6 million of working capital. Bank debt was $36.0 million, compared with $37.0 million at year-end 2020. The company reported $14 million of remaining borrowing availability under its $50 million borrowing base at year-end.
- Net property and equipment was $184.7 million; total liabilities were $111.8 million and equity was $99.1 million.
- Proved reserves were 12.25 million BOE, reported as 100% proved developed. The standardized measure of discounted future net cash flows was $135.8 million, compared with $41.6 million in 2020; this SEC measure is not a market valuation. Net production averaged approximately 3,964 BOE/day.
Material changes versus FY2020
- The company returned to profitability as commodity prices recovered. Oil and gas sales increased by $36.2 million, while production volumes were mixed and generally modestly lower.
- Operating cash flow increased by $12.2 million. Cash from operations exceeded investment spending in 2021, though investing activities used $19.2 million net.
- Year-end proved reserves increased from 10.44 million BOE to 12.25 million BOE. The standardized measure increased largely with higher prices and reserve revisions; the filing attributes $143.8 million of the change to net changes in prices and production costs.
- Gain on sale and exchange of assets declined to $1.5 million from $15.8 million in 2020. A $1.7 million PPP loan forgiveness gain was recorded in 2021; the loans were subsequently approved for forgiveness.
- All remaining managed partnerships and trusts were liquidated by December 31, 2021.
Outlook, risks and unusual items
- Management’s 2022 priorities are liquidity and financial flexibility. The capital program is based on expected cash flow, with any shortfall potentially funded by the revolving facility; spending may be adjusted, and asset sales or joint ventures may be used.
- Plans described for 2022 include multiple horizontal drilling projects in Texas and Oklahoma. Disclosed expected company investments include approximately $40.5 million for nine Reagan County wells, $15 million for four Martin County wells, and additional smaller Oklahoma and Irion County programs. Timing, participation and costs remain subject to commodity prices, operator plans and available funding.
- After selling 1,809 net leasehold acres in Reagan and Midland counties for gross proceeds of $14.1 million in Q1 2022, bank debt was $9 million at March 31, 2022, with $41 million available under the stated borrowing base. These are post-year-end figures. The credit facility matures February 11, 2023, and its borrowing base is subject to lender redetermination.
- Commodity-price volatility is a central risk: lower prices could reduce cash flow, reserves, borrowing capacity and the economics of planned drilling. Hedging limits some downside but also limits gains from price increases; derivative fair-value changes add earnings volatility.
- Other material risks include drilling and production uncertainty, reliance on third-party operators and purchasers, pipeline and processing access, environmental and hydraulic-fracturing regulation, climate-related policy and physical risks, potential asset impairment, and cyber and uninsured operating exposures. Apache represented 48% of oil sales and 52% of gas and NGL sales in 2021; the company has no long-term purchasing agreements with these buyers.
- The filing reports no legal proceedings and management did not expect environmental or other ordinary-course contingencies to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal controls.
Important facts for investors to verify
- Review the complete audited statements and notes for working-capital needs, debt covenants, derivative exposures and the timing and cash impact of PPP forgiveness.
- Confirm the status and economics of 2022 drilling plans, including actual company working interests, capital commitments, well results and funding sources.
- Track the May 2022 borrowing-base review, remaining availability and refinancing or repayment plans ahead of the February 2023 facility maturity.
- Assess reserve assumptions and the distinction between year-end proved reserves, the $135.8 million standardized measure and market value. The filing also describes 159 MBOE of proved-developed shut-in reserves in Oklahoma.
- Reconcile the filing’s differing descriptions of Oklahoma acreage: one passage cites approximately 6,200 net leasehold acres, while another cites approximately 200 net acres.