PrimeEnergy Resources Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed April 15, 2024. This is an annual report, not a quarterly filing. PrimeEnergy is a U.S. independent oil and gas producer, with operations primarily in Texas and Oklahoma, plus well-servicing activities.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Oil, natural gas and NGL sales | $107.7 million | $124.1 million |
| Total revenues and other income | $132.8 million | $157.1 million |
| Net income | $28.1 million | $48.7 million |
| Basic / diluted earnings per share | $15.19 / $10.77 | $24.91 / $17.95 |
| Cash provided by operating activities | $109.0 million | $33.1 million |
| Capital expenditures, including exploration | $113.8 million | $16.0 million |
| Cash and cash equivalents at year-end | $11.1 million | $26.5 million |
| Bank debt at year-end | None | $11.0 million |
- Oil production increased 21.8% to 1.144 million barrels; NGL production rose 45.3% to 606,000 barrels; natural gas production rose 24.1% to 4.127 Bcf.
- Average realized prices excluding derivatives declined: oil to $76.84/barrel from $96.70; NGLs to $19.64/barrel from $35.70; gas to about $1.93/Mcf from $5.54.
- Field-service revenue increased 18.5% to $15.4 million. Net gains on asset dispositions fell to $8.9 million from $31.8 million.
- Oil and gas production costs were $31.9 million; DD&A was $31.0 million, up from $27.4 million. G&A declined to $15.6 million from $20.2 million. Income tax provision was $6.1 million versus $10.3 million.
- Operating cash flow rose substantially, while investing outflows increased with the drilling program. Cash declined by $15.5 million during 2023. The filing reports $113.8 million of capital expenditures and $8.1 million of property and equipment sale proceeds.
- Year-end current assets were $31.8 million and current liabilities $64.8 million. The resulting working-capital deficit was approximately $33.0 million.
Material changes and reserves
- Lower commodity prices outweighed higher production: oil and gas sales declined 13.2%, and net income fell about 42% year over year.
- Proved reserves rose to 29.046 million BOE from 16.719 million BOE; approximately 47% were proved developed and 53% proved undeveloped. About 90% of proved reserves were in West Texas.
- The standardized measure of discounted future net cash flows increased to $278.0 million from $244.5 million. The filing also presents a pre-tax PV-10 measure of $352.0 million; these measures differ in tax treatment and should not be conflated.
- Net oil and gas property carrying value was $252.9 million, up from $169.5 million. Development costs reported in supplementary information were $110.7 million.
- PrimeEnergy invested approximately $91 million, including facilities, in 35 horizontal wells during 2023. It also sold non-core acreage and other interests, contributing to the $8.9 million net gain on asset dispositions.
Liquidity, outlook and risks
- The revolving credit facility matures June 1, 2026, with lender commitments of $300 million. The year-end borrowing base was $65 million and there were no year-end borrowings. A February 2024 amendment raised the borrowing base to $85 million; at March 31, 2024, borrowings were $4 million and reported availability was $81 million. Oil and gas properties secure the facility, which includes financial and operational covenants. Management reported compliance and expected continued compliance over the next 12 months.
- Management expects to complete 54 horizontal wells in 2024 for approximately $140 million, with cash-flow shortfalls potentially funded by the revolving facility. It expects approximately $95 million of investment in 23 wells in 2025 and identifies 28 additional West Texas locations for 2026–2027 requiring an estimated $67 million. These are plans, not guarantees; management may adjust capital spending, sell assets or pursue joint ventures to preserve liquidity.
- At year-end 2023, the company had no oil or gas swap agreements in place. Derivative gains were $0.4 million in 2023, compared with losses of $12.0 million in 2022. Derivatives are marked to market through earnings and may increase reported volatility.
- Key exposures include volatile commodity prices and regional price differentials; borrowing-base reductions and covenant compliance; drilling, reserve-estimation and cost risks; reliance on third-party operators, transport and processing infrastructure; environmental, water-disposal, methane and hydraulic-fracturing regulation; climate-related market and regulatory changes; and uninsured or underinsured operating, pollution and cyber incidents.
- Oil purchasers APA, Civitas, Plains All American and DE IV accounted for 22%, 20%, 19% and 14% of oil sales, respectively. APA accounted for 17% of gas sales. The company reports no long-term purchasing agreements with these customers.
- Management said ordinary-course litigation and environmental matters are not expected to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Confirm cash conversion and funding needs: operating cash flow was $109.0 million against $113.8 million of capital expenditures, while year-end cash declined and working capital was negative.
- Review the 2024 borrowing-base redetermination, borrowing availability, covenant headroom and the facility’s collateral and hedge requirements.
- Track delivery, cost and production performance of the 2024 drilling program, and compare actual spending with the $140 million plan.
- Assess reserve quality and development execution, particularly the large proved-undeveloped component and the assumptions underlying reserve values and DD&A.
- Check the filing’s apparent MD&A data issues: the production-cost sentence contains a garbled percentage, and the G&A comparison refers to 2021 although the cited $20.2 million matches the 2022 financial statements. Verify figures against the audited statements.
- Consider share dilution and capital allocation: 767,500 options were outstanding and exercisable at year-end, while the company repurchased $7.5 million of stock in 2023 and reported no intention to pay cash dividends in the foreseeable future.