Permian Resources Corp annual report, FY2019

Filing summary

Entity note: The request names Permian Resources Corp, but the supplied Form 10-K is for Centennial Resource Development, Inc. (NASDAQ: CDEV). This summary reflects the filing. It covers the fiscal year ended December 31, 2019; the filing provides annual results and selected quarterly data, not a standalone fourth-quarter summary.

Business context

Centennial was an independent oil and gas producer focused on horizontal development in the Delaware Basin, in West Texas and New Mexico. At year-end it held 78,195 net acres, operated 93% of its acreage, and had 349 gross operated producing horizontal wells.

Financial and operating performance

Metric20192018
Oil and gas revenue$944.3 million$891.0 million
Income from operations$79.4 million$283.2 million
Net income attributable to Class A common stock$15.8 million; $0.06 per diluted share$199.9 million; $0.75 per diluted share
Cash from operating activities$564.2 million$670.0 million
Cash used in investing activities$933.0 million$1,068.7 million
Cash and cash equivalents at year-end$10.2 million$18.2 million
Long-term debt, net$1,057.4 million$691.6 million
Total proved reserves301.1 MMBoe261.8 MMBoe

Production rose 25% to 76,072 Boe/d. Oil production increased 23% to 42,692 Bbl/d. Before hedging, realized oil price declined 7% to $52.02/Bbl, natural gas fell 46% to $1.07/Mcf, and NGLs fell 38% to $17.03/Bbl. Operating margin was approximately 8.4% of revenue, compared with 31.8% in 2018; higher production did not offset weaker prices and higher costs.

Lease operating expense increased 75% to $146.0 million, including higher well count and workover activity; LOE rose to $5.26/Boe from $3.74. DD&A increased to $444.2 million from $326.5 million, and impairment and abandonment expense rose to $47.2 million from $11.1 million. Interest expense more than doubled to $56.0 million, primarily reflecting the 2027 notes issued in 2019.

Changes, liquidity and outlook

  • Revenue increased 6%, chiefly on higher production, while attributable net income fell sharply from $199.9 million to $15.8 million. Operating cash flow declined by $105.8 million.
  • 2019 capital expenditures were reported as $891.8 million; cash investing outflows were $933.0 million, including acquisitions and other items. Cash from operations therefore did not cover investing outflows.
  • Debt increased after CRP issued $500 million of 6.875% senior notes due 2027. At year-end it had $175 million drawn on its revolving facility, $624.2 million of available borrowing capacity, and an $800 million elected commitment within a $1.2 billion borrowing base. It reported compliance with debt covenants.
  • Management budgeted 2020 capital spending of $590 million–$690 million, including $490 million–$550 million for drilling and completions, and expected to fund it primarily with operating cash flow. This outlook depended on commodity prices, production and access to financing.
  • In a subsequent event dated February 24, 2020, the company agreed to sell water-disposal assets for approximately $150 million cash, with up to $75 million in deferred incentive payments tied to future drilling; closing was expected by the end of first-quarter 2020.

Management commentary, risks and unusual items

Management cited Permian natural-gas takeaway constraints as a factor depressing realized gas prices. A new pipeline entered service late in third-quarter 2019, and additional capacity was planned through 2022; the timing and effect were uncertain. The company’s results and reserve values were also exposed to commodity-price volatility, concentration in the Delaware Basin, operating and water-disposal constraints, and changes in environmental and other regulation.

Reserves were independently estimated. Proved undeveloped reserves were 51% of total proved reserves; 28.4 MMBoe were converted to developed reserves in 2019, while reserve-value changes were materially affected by prices. The standardized measure of discounted future net cash flows fell to $2.06 billion from $2.48 billion, including a substantial negative impact from price and production-cost changes. These reserve measures are estimates, not market values.

Other notable items included a $1.8 million non-recurring charge for settlement of a water-disposal contract dispute and adoption of the new lease accounting standard, which added right-of-use assets and lease liabilities without significant reported effect on operations or cash flows. The auditor issued unqualified opinions on the financial statements and internal controls; the audit identified reserve estimates used in depletion expense as a critical audit matter. The filing reported no legal proceedings believed likely to have a material adverse effect.

Important facts for investors to verify

  • Confirm the issuer identity: the supplied filing is Centennial Resource Development, Inc., not Permian Resources Corp.
  • Review the drivers of the steep year-over-year profit decline, especially realized commodity prices, operating costs, impairments and additional interest expense.
  • Assess 2020 spending and liquidity against operating cash generation, debt maturities, borrowing-base redeterminations and the expected water-asset sale proceeds.
  • Check reserve assumptions and PUD development schedules, particularly sensitivity to prices and the company’s reliance on one basin.
  • Review customer concentration, firm delivery and transportation commitments, and exposure to gas takeaway and produced-water disposal constraints.