Filing scope and business context
The supplied filing is Centennial Resource Development, Inc.’s Form 10-K for the fiscal year ended December 31, 2016, filed March 23, 2017. It is not a filing for Permian Resources Corp.; the company name in the request does not match the filing. The report covers an independent oil and gas producer focused on the Delaware Basin in West Texas.
Centennial completed its business combination with Centennial Resource Production, LLC (CRP) on October 11, 2016, and acquired Silverback’s Reeves County assets on December 28, 2016. The financial statements distinguish a Successor period (October 11–December 31) from a Predecessor period (January 1–October 10); acquisition accounting means those periods are not directly comparable.
Key financial and operating metrics
| Metric | 2016 / year-end | Comparable period or context |
|---|---|---|
| Revenue | $98.8 million combined for 2016 | Up 9% from $90.5 million in 2015 |
| Net result | Successor-period net loss attributable to Centennial: $8.1 million; Predecessor-period net loss: $218.7 million | Predecessor loss included $165.4 million of non-cash incentive-unit compensation related to the business combination |
| Production | 3.085 million Boe combined; average 8,429 Boe/d | Up 15% from 2.671 million Boe in 2015 |
| Average realized price | $32.04/Boe for combined 2016, before derivative settlements | Down 5% from $33.87/Boe in 2015; oil $39.91/Bbl, gas $2.52/Mcf, NGLs $15.01/Bbl |
| Production costs | $8.65/Boe combined for lease operating, severance/ad valorem, and transportation/processing/gathering costs | Compared with $11.96/Boe in 2015 |
| Cash flow | $61.2 million provided by operating activities combined for 2016 | Versus $68.9 million in 2015. Investing used $1.75 billion and financing provided $1.87 billion in the Successor period, principally reflecting acquisitions and equity issuance |
| Cash and liquidity | $134.1 million cash; $59.9 million working-capital surplus at December 31, 2016 | CRP’s $250 million revolver had no borrowings and $249.6 million available, after letters of credit |
| Debt | No outstanding debt at December 31, 2016 | Predecessor debt at December 31, 2015 was $138.6 million; it was repaid at the business combination |
| Proved reserves | 83.0 million Boe at December 31, 2016; 70% undeveloped | More than double the 40.7 million Boe at October 10, 2016, mainly reflecting acquisitions and extensions |
Material changes and unusual items
- Combined 2016 revenue grew 9% year over year as production increased 15%, partly offset by a 5% decline in realized price per Boe.
- Production costs per Boe fell year over year, including lease operating expense of $4.73/Boe versus $7.93/Boe in 2015.
- The October business combination led to a $218.7 million Predecessor-period net loss, substantially affected by $165.4 million of non-cash incentive-unit compensation and $15.8 million of transaction costs.
- The December Silverback acquisition cost approximately $855 million and added about 35,500 net acres and 31 operated producing horizontal wells. The company issued equity and preferred securities in private placements to fund the transaction.
- The Successor balance sheet reported $2.65 billion in assets, reflecting acquisition accounting and substantial acquired unproved properties; comparisons with 2015 are therefore not like-for-like.
Outlook, risks, and contingencies
Management forecast 2017 capital expenditures of $500–$585 million, including $440–$500 million for drilling and completion. Management stated that cash, operating cash flow, and revolver availability were expected to fund the current program, while noting that future liquidity depends on production, commodity prices, and access to capital.
Key risks include commodity-price volatility; the capital-intensive nature of development; lender discretion over semiannual borrowing-base redeterminations; the high undeveloped share of reserves and lease-expiration exposure; integration and performance risks from Silverback; reliance on a small number of purchasers; and environmental, hydraulic-fracturing, water-disposal, seismicity, and transportation constraints. The company reported compliance with credit covenants, no off-balance-sheet arrangements, and no known pending litigation requiring a liability reserve. It reported no material environmental compliance or remediation expenditures in 2016 and did not expect such expenditures in 2017.
Subsequent to year-end, the company announced redemption of public warrants for $0.01 each unless exercised cashlessly before March 31, 2017. Full exercise was estimated to result in approximately 6.27 million additional Class A shares. Series B preferred shares were convertible into Class A shares subject to stockholder approval.
Investor facts to verify
- Confirm the intended issuer: this filing is for Centennial Resource Development, Inc., not Permian Resources Corp.
- Review the separate Successor and Predecessor periods and acquisition-accounting effects before comparing earnings or balance-sheet figures.
- Assess whether the 2017 capital budget and management’s liquidity assumptions were met, including the outcome of the spring 2017 borrowing-base redetermination.
- Verify Silverback integration, acquired-asset production, title/assignment consents, and development performance.
- Evaluate reserve quality and development requirements, particularly the 70% proved-undeveloped share, price assumptions, and lease expirations.
- Check warrant redemption and preferred-stock conversion outcomes for resulting dilution and ownership changes.