PrimeEnergy Resources Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. The interim financial statements are unaudited. PrimeEnergy is an independent U.S. oil and natural gas producer, with operations primarily in Texas and Oklahoma, and also provides oilfield services.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenues and other income | $43.0 million | $22.8 million |
| Oil, natural gas and NGL sales | $39.0 million | $18.7 million |
| Income before income taxes | $14.3 million | $1.8 million |
| Net income | $11.3 million | $1.4 million |
| Net income per share | $6.27 basic; $4.41 diluted | $0.75 basic; $0.53 diluted |
| Cash from operations | $43.2 million | $30.6 million |
| Capital expenditures, including exploration | $54.1 million | $30.1 million |
| Cash and cash equivalents | $1.8 million | $11.1 million at Dec. 31, 2023 |
| Bank debt | $4.0 million | None at Dec. 31, 2023 |
- Oil and gas sales rose 108.4%. Oil revenue increased 128.4%, supported by a 122.9% increase in barrels produced and a 2.5% higher average realized oil price ($77.26/bbl). Gas revenue fell 22.5% as the realized price declined 46.6% to $1.17/Mcf, partly offset by higher volumes. NGL revenue rose 82.3% on increased volumes despite a lower realized price.
- Net income margin was approximately 26% of total revenues and other income, versus approximately 6% in Q1 2023. DD&A increased to $10.3 million from $6.4 million as production and property basis grew. Production and ad valorem taxes increased to $12.1 million from $8.0 million, reflecting higher production.
- Operating cash flow exceeded capital expenditures by approximately $10.9 million; cash declined by $9.3 million during the quarter. Financing included $14 million of borrowings, $10 million of debt repayments and $2.8 million of treasury-stock purchases.
- At March 31, total assets were $332.9 million, total liabilities $163.5 million and equity $169.4 million. Current liabilities of $88.5 million exceeded current assets of $32.1 million, including $61.9 million of accrued property costs.
- The credit facility has an $85 million borrowing base following a February amendment; at March 31, $4 million was drawn and $81 million available. As of May 15, borrowings were $2 million and availability was $83 million. The facility matures June 1, 2026, is secured by substantially all oil and gas properties, and is subject to financial and operating covenants.
Changes, outlook and risks
- Production growth from West Texas wells brought on in the second half of 2023 and Q1 2024 was a principal driver of higher sales and costs. Average oil production increased to 431,000 barrels from 193,351; gas sold increased 44.4%, and NGL barrels sold increased 94.7%.
- Management expects to complete 54 horizontal wells in 2024, with approximately $140 million of investment, and plans approximately $95 million for 23 additional wells to be drilled partly in 2024 and completed in 2025. The company was participating in 34 West Texas wells at quarter-end, with combined expected spending of approximately $80 million. Development spending is discretionary and may be adjusted; cash shortfalls may be funded through the credit facility.
- Management reported compliance with credit covenants and expected continued compliance over the next 12 months. The next borrowing-base review was scheduled for June 2024; a lower borrowing base could restrict availability or require repayment. The credit agreement’s hedge requirement did not apply as of May 10, 2024. The company reported no active derivatives at quarter-end.
- Management cites commodity-price and production volatility, reserve uncertainty, operating and development costs, access to services and infrastructure, regulatory and environmental matters, and financing and counterparty risks. It expects no material adverse effect from disclosed ordinary-course legal matters or environmental obligations; no legal proceedings were reported.
- Q1 included $431,000 of gains on asset dispositions; the company also repurchased 29,855 shares for $2.85 million. It sold 48 net acres in Lea County, New Mexico, for gross proceeds of $375,600 during Q1 and a further 12 net acres for $150,600 early in Q2.
Key facts for investors to verify
- Whether production growth and realized oil, gas and NGL prices support the planned development budget, particularly given the low realized gas price.
- Funding needs and liquidity relative to the approximately $140 million 2024 drilling plan, low quarter-end cash, accrued property costs and the June borrowing-base review.
- Well-level spending, completion timing and production results for the Q1/Q2 West Texas program, including whether expected costs remain within plan.
- Reserve estimates and development assumptions: year-end 2023 proved reserves were 29.0 MBOE, including 15.5 MBOE proved undeveloped; these are estimates, not production or guaranteed cash flows.
- The reported basic and diluted EPS figures and their treatment of outstanding options; diluted weighted-average shares were approximately 2.57 million versus 1.81 million basic shares in Q1 2024.