Filing summary
Registrant and period: The supplied filing is Centennial Resource Development, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2018—not a filing under the name Permian Resources Corp. The company focused on oil and associated liquids-rich natural gas development in the Delaware Basin.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Oil and gas sales | $234.9 million | $111.6 million | $668.5 million | $263.8 million |
| Income from operations | $69.4 million | $26.5 million | $233.9 million | $57.0 million |
| Net income | $41.7 million | $16.3 million | $179.9 million | $50.2 million |
| Net income attributable to Class A common stock | $39.3 million | $14.4 million | $168.9 million | $45.0 million |
| Diluted EPS | $0.15 | $0.06 | $0.63 | $0.19 |
| Net cash from operating activities | Not presented by quarter | $494.7 million | $137.2 million | |
| Net cash used in investing activities | Not presented by quarter | $(695.0) million | $(766.8) million |
- Q3 average daily production was 62,930 Boe/d, up 81%; nine-month average production was 58,208 Boe/d, up 110%.
- Q3 realized oil price before hedge settlements rose 24% to $55.68/Bbl; natural gas fell 33% to $1.83/Mcf; NGLs rose 24% to $30.85/Bbl. Management attributed weaker gas realizations and wider oil differentials in part to Permian takeaway constraints.
- At September 30, cash and cash equivalents were $58.9 million; current assets were $165.9 million and current liabilities $211.3 million. Long-term debt, net, was $531.4 million, comprising $140.0 million drawn on the revolver and approximately $391.4 million of senior notes. Revolver availability was $459.1 million, net of letters of credit.
Changes and notable developments
- Compared with Q3 2017, sales increased 110%, primarily from higher production and stronger oil and NGL prices. Production gains reflected drilling, including 84 gross operated wells placed on production since Q3 2017.
- Operating expenses rose with the larger well base and production. Q3 DD&A increased to $83.4 million from $42.4 million; interest expense rose to $6.5 million from $1.0 million, chiefly because of the senior notes issued in November 2017.
- For the nine months, the company spent $723.1 million on drilling and development and $114.9 million on property acquisitions. It acquired approximately 4,000 net acres in Lea County, New Mexico, for a net $94.5 million and sold approximately 8,600 net acres and 12 producing wells in Reeves County, Texas, for $140.7 million.
- In May 2018, the company amended its five-year revolving credit facility, lowering pricing and increasing the borrowing base and elected commitments. After quarter-end, the October redetermination raised the borrowing base to $1.0 billion and commitments to $800 million.
Outlook, risks, and contingencies
- Management’s 2018 capital expenditure budget was $885 million–$1.05 billion, including $710 million–$820 million for drilling and completion. The company expected to fund the program with operating cash flow and revolver borrowings, while noting that spending could be deferred depending on prices, drilling results, infrastructure, permits, and capital availability.
- The company reported compliance with its credit-facility and senior-note covenants. The revolver matures May 2023; $400 million of 5.375% senior notes are due 2026.
- Commodity prices, differentials and pipeline capacity are key risks. Management estimated that a 10% price change, based on nine-month 2018 production, would change pretax income by approximately $53.4 million for oil, $8.8 million for NGLs and $4.7 million for natural gas.
- New commitments included minimum natural gas transportation obligations of $38.4 million and minimum frac-sand purchases of $23.8 million. Firm crude oil sales agreements require gross deliveries of approximately 40,000–105,000 Bbl/d over six years; potential costs for delivery shortfalls were not determinable.
- Management said ordinary-course legal matters were not expected to have a material adverse effect and reported no material changes to previously disclosed risk factors. Forward-looking statements remain subject to commodity, operating, financing, regulatory and reserve-estimation uncertainties.
Investor verification points
- Confirm the issuer identity: the supplied 10-Q names Centennial Resource Development, Inc., which differs from the company identified in the request metadata.
- Review whether production growth and the 2018 capital program translated into sustainable cash generation; nine-month investing outflows exceeded operating cash flow.
- Track realized prices and Permian differentials, takeaway capacity, and the economic effect of the company’s hedge positions.
- Assess revolver utilization, borrowing-base redeterminations, debt covenants and the delivery and purchase commitments described in the filing.
- Consider the effects of rising DD&A, operating costs and acreage abandonment expense on future profitability.