PrimeEnergy Corporation (filing requested for PrimeEnergy Resources Corp.) — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparative period is Q1 2013. The filing identifies the registrant as PrimeEnergy Corporation. Financial statements are unaudited and interim results are not necessarily indicative of full-year results. Unless noted otherwise, amounts below are in millions of dollars.
Business context
PrimeEnergy is an independent U.S. oil and natural gas company engaged in acquiring, developing, and producing oil and gas, with oilfield servicing operations. Its properties are primarily in Texas, Oklahoma, West Virginia, the Gulf of Mexico, New Mexico, Colorado, and Louisiana.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 / prior balance |
|---|---|---|
| Total revenues | $30.385 | $26.970 |
| Income from operations | $6.326 | $4.588 |
| Net income | $3.769 | $2.364 |
| Net income attributable to PrimeEnergy | $2.809; $1.18 basic and $0.90 diluted per share | $2.258; $0.90 basic and $0.70 diluted per share |
| Operating cash flow | $11.130 | $11.407 |
| Capital expenditures | $7.864 | $11.520 |
| Cash and cash equivalents at period end | $10.486 | $9.526 at Dec. 31, 2013 |
| Total assets | $245.646 | $242.922 at Dec. 31, 2013 |
| Total liabilities | $189.870 | $189.784 at Dec. 31, 2013 |
- Oil and gas sales were $24.201 million, up 13%; field service income was $6.772 million, up 27%. The company reported a $3.173 million gain on asset sales, compared with $1.060 million a year earlier.
- Total costs and expenses increased to $27.232 million from $23.442 million. Lease operating expense rose 19% to $11.906 million, and field service expense rose 22% to $5.527 million. Interest expense was $1.079 million; the effective tax rate was 34%.
- Oil production declined 1% to 182,000 barrels and gas production declined 3% to 1.153 million Mcf. Higher realized prices contributed to revenue growth: oil averaged $94.15 per barrel and gas $6.13 per Mcf, excluding derivative settlements.
- Net cash used in investing was $4.581 million, including $3.283 million of asset-sale proceeds. Net cash used in financing was $5.589 million, including $19.211 million of debt repayments and $14.750 million of borrowings.
- At March 31, total bank and equipment-loan debt was approximately $117.4 million: $115.544 million long-term bank debt, $1.888 million current debt, and $8.9 million outstanding on the equipment loan. The revolving facility borrowing base was $140 million, with $31.5 million available. The company reported compliance with its debt covenants and expected continued compliance over the next 12 months.
- Current assets were $33.172 million versus current liabilities of $33.706 million. Restricted cash of $2.065 million was primarily associated with oil and gas revenue payments and had corresponding payables.
Changes, outlook, and risks
- PrimeEnergy-attributable net income increased 24%, primarily due to higher oil and gas sales, field service income, and asset-sale gains. Higher operating costs, derivative losses, taxes, and income attributable to non-controlling interests partly offset the improvement.
- Commodity derivative results remained volatile: Q1 included a $0.997 million realized net loss and a $1.982 million unrealized net loss. The total derivative position was a net liability of $2.849 million at March 31, compared with $0.865 million at year-end. These instruments are Level 3 fair-value measurements; commodity derivatives are not hedge-accounted.
- Management said it was shifting its drilling mix toward horizontal wells, which it believes may improve returns relative to vertical drilling. Through April 30, the company had participated in five gross (1.8 net) wells; three were producing and two were awaiting completion.
- For 2014, management intended to drill approximately 25 gross (12 net) wells, primarily in West Texas, at an estimated net cost of $60 million. This is management’s stated plan, not a guarantee. Spending levels remain discretionary and dependent on business conditions and available prospects.
- Management cited oil and gas price volatility, production variability, drilling cost overruns and technical difficulties, reserve-estimate uncertainty, competition, and the ability to replace and expand reserves as risks. Hedging may limit gains if prices rise and exposes the company to counterparty credit risk. Borrowing availability may change following semiannual reserve-based borrowing-base reviews.
- The company said affiliated partnership cash reserves exceeded partnership debts and liabilities, and management expected them to be sufficient. Management did not expect environmental matters or ordinary-course litigation to have a material adverse effect; the filing reports no legal proceedings.
- The company spent $1.046 million repurchasing 20,612 treasury shares in the quarter and reported $1.09 million of spending under stock and partnership-interest repurchase programs. Disclosure controls were considered effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether production trends and horizontal drilling results support the planned 2014 well count and $60 million net drilling program.
- How much earnings and future cash flow depend on asset-sale gains, commodity prices, and derivative settlements or fair-value changes.
- Current borrowing-base availability, covenant headroom, and exposure to a reduction in the borrowing base after reserve reviews.
- The assumptions behind reserve estimates and asset-retirement obligations, and the valuation inputs for Level 3 derivatives.
- The filing’s registrant is PrimeEnergy Corporation; confirm that it is the intended entity for the requested company name, PrimeEnergy Resources Corp.