Business context and reporting period
This is Centennial Resource Development, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2021. The filing describes an independent oil and gas producer focused on the Delaware Basin, part of the Permian Basin. The supplied company label, Permian Resources Corp, does not match the registrant name shown in this filing.
Financial and operating highlights
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Oil and gas sales | $192.4 million | $192.8 million |
| Operating income (loss) | $34.0 million | $(608.6) million |
| Net income (loss) | $(34.6) million | $(550.3) million |
| Loss per share, basic and diluted | $(0.12) | $(1.99) |
| Cash from operating activities | $72.3 million | $100.8 million |
| Cash used in investing activities | $46.6 million | $167.0 million |
- Quarter-end cash and cash equivalents were $10.9 million. Total current assets were $87.0 million versus current liabilities of $194.2 million.
- Long-term debt, net, was $1.064 billion. Revolver borrowings were $160 million, with $503.9 million of available capacity at quarter-end; the spring borrowing-base redetermination reaffirmed the $700 million borrowing base and elected commitments.
- Net production averaged 54,202 Boe/d, down 25% year over year. Oil production averaged 28,239 Bbl/d, down 32%.
- Average realized oil price before hedging rose 17% to $52.62/Bbl, while derivative settlements reduced the average by $9.43/Bbl. Natural gas and NGL realized prices before hedging rose 386% and 108%, respectively. Total sales were nearly unchanged as higher prices largely offset lower volumes.
- Lease operating expenses fell 21% to $25.9 million; gathering, processing and transportation expense rose 22% to $20.6 million. DD&A declined to $63.8 million from $101.3 million.
Material changes and unusual items
- The prior-year quarter included $611.3 million of impairment and abandonment expense, including a $591.8 million noncash proved-property impairment. Q1 2021 impairment and abandonment expense was $9.2 million, primarily leasehold expiration costs.
- Q1 2021 included a $51.2 million net derivative loss, compared with an $8.5 million loss in Q1 2020; $28.3 million of the 2021 loss was noncash mark-to-market loss.
- In March, the company issued $170 million of 3.25% convertible senior notes due 2028, receiving $163.7 million net proceeds, and paid $14.7 million for capped-call transactions. In April, it redeemed all $127.1 million of 8% senior secured notes and paid $3.8 million accrued interest. It expects to record an approximately $22.2 million extinguishment loss. The redemption also removed a $31.8 million revolver availability blocker.
- Winter Storm Uri temporarily shut in certain wells for about seven days and disrupted operations and transportation. The storm also drove higher regional gas prices and increased gathering, processing, transportation and electricity costs.
Outlook, risks and contingencies
- Management planned to operate two rigs through the remainder of 2021 and forecast full-year capital expenditures of $260 million to $310 million, including $250 million to $290 million for drilling, completion and facilities. It expected to fund spending from operating cash flow and continue paying down revolver borrowings, subject to prevailing commodity prices.
- Management cited volatility in commodity prices, differentials, production, COVID-19 effects, operating costs, access to capital, reserve estimates and borrowing-base redeterminations as risks. Lower prices could pressure cash flow, liquidity, collateral value and covenant compliance.
- A transportation provider sued over payment for reserved but unused capacity during Winter Storm Uri. The company considered a loss reasonably possible, ranging from zero to $7.6 million, with no amount in that range a better estimate than another.
- The company reported compliance with applicable debt covenants as of March 31 and through the filing date. Disclosure controls were assessed as effective; management reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the registrant identity and whether this Centennial Resource Development filing is the intended filing for Permian Resources Corp.
- Check actual production, realized prices and hedge settlement results against the company’s expectations, particularly given lower volumes and the effect of hedges on oil realizations.
- Track cash generation, capital spending, revolver utilization and covenant headroom; quarter-end liquidity included substantial revolver availability, not solely cash.
- Verify the completed April note redemption, related extinguishment charge and updated debt and borrowing availability in subsequent reports.
- Monitor the Winter Storm Uri transportation dispute and any developments affecting the estimated potential loss.