Permian Resources Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The company is an independent oil and gas producer focused on the Delaware Basin. Its September 2022 merger with Colgate materially expanded its operations; 2022 comparative results include Colgate only from September 1, so reported year-over-year growth is not directly like-for-like.
Key financial and operating metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Oil and gas sales | $623.4 million | $472.7 million | $1,239.7 million | $819.9 million |
| Income from operations | $191.4 million | $281.7 million | $427.6 million | $446.8 million |
| Net income | $149.0 million | $191.8 million | $368.8 million | $207.6 million |
| Net income attributable to Class A | $73.4 million | $191.8 million | $175.5 million | $207.6 million |
| Diluted EPS | $0.21 | $0.60 | $0.52 | $0.66 |
| Operating cash flow | Not provided for the quarter | $886.7 million | $455.1 million | |
| Net cash used in investing | Not provided for the quarter | $699.4 million | $228.6 million |
Q2 operating margin was approximately 30.7% (operating income divided by sales). Q2 average production was 165,850 Boe/d, up 136% year over year; oil production was 84,393 Bbl/d, up 130%. The six-month average was 159,869 Boe/d, up 143%.
Q2 oil and gas sales rose 32%, driven by much higher production, partly offset by lower realized prices: oil price excluding hedges fell 32%, natural gas 80%, and NGLs 54%. Q2 derivative activity produced a $20.6 million net gain; six-month derivative gain was $75.1 million, including realized settlements and mark-to-market effects.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $18.3 million, versus $59.5 million at December 31, 2022. Current assets were $426.0 million and current liabilities $722.7 million.
- Long-term debt, net, was $2.060 billion, down from $2.141 billion at year-end. This included $300 million drawn under the revolving facility and senior and convertible notes.
- The revolving facility had $1.5 billion of elected commitments, a $2.5 billion borrowing base, and $1.2 billion of available capacity net of letters of credit. The company reported compliance with debt covenants and financial ratios.
- Six-month cash uses included $686.6 million of drilling and development expenditures, $107.8 million of net property acquisitions, $85.5 million in dividends and distributions, and $29.4 million of unit repurchases. Cash and restricted cash ended the period at $18.8 million.
Changes, outlook and material items
- For the first half, sales increased 51% while operating income decreased 4%. Production growth following the Colgate merger and new wells more than offset lower commodity prices, but costs also rose: DD&A reached $403.9 million versus $153.1 million, and interest expense was $73.6 million versus $27.5 million.
- Management attributed higher lease operating costs partly to the acquired wells, inflation in well-related costs, and higher water-disposal rates after selling its Reeves County water infrastructure. Some gathering, processing and transportation costs were reclassified as reductions to gas and NGL revenue under contract accounting, affecting period comparisons.
- 2023 drilling, completion and facilities capital expenditure budget: $1.25–$1.45 billion. Management expected to fund the budget from operating cash flow, based on expected production, commodity prices and hedges. The company operated seven drilling rigs in the first half.
- The company acquired approximately 4,000 net leasehold acres and 3,300 net royalty acres in Lea County, New Mexico. It also sold Reeves County water assets for $125 million, including $60 million of contingent consideration subject to future performance obligations through September 2026; that contingent amount was recorded as a liability.
- Shareholder returns included base dividends and a variable dividend. On August 2, the board declared a further $0.05 base and $0.05 variable dividend per Class A share, payable August 23, 2023.
- Stock-based compensation included $32.2 million of additional expense in the first half from accelerated vesting tied to employee terminations following the merger. A new incentive plan authorized an additional 25 million shares.
- A transportation-provider dispute related to Winter Storm Uri carries a reasonably possible loss range of $0–$7.6 million, plus potentially additional interest; management identified no better estimate within the range. Separately, a New Mexico flaring matter was resolved in Q3 2023 with a $600,000 penalty.
- Risks include volatile commodity prices, inflation and service costs, reserve and production-estimate uncertainty, lender redetermination of the borrowing base, interest-rate exposure on variable-rate debt, and environmental, regulatory and operating risks. The filing reports no material change in previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Assess the impact of the merger on year-over-year comparisons and the extent to which production growth is organic versus acquired.
- Review realized commodity prices, hedge volumes and terms, and the sensitivity of cash flows to oil, gas and NGL price changes.
- Track capital spending against the $1.25–$1.45 billion budget, operating cash flow, and the company’s ability to maintain dividends and repurchases.
- Monitor debt, revolving-facility availability, covenant compliance, and the convertible notes’ potential conversion and dilution; holders had conversion rights during Q3 2023.
- Follow the $60 million contingent divestiture consideration and the Winter Storm Uri claim, along with the status of environmental compliance actions.