PrimeEnergy Resources Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; balance-sheet comparisons are with December 31, 2021. The interim financial statements are unaudited. PrimeEnergy is an independent oil and natural gas producer, with operations primarily in Texas and Oklahoma, and also provides field services.
Financial performance and position
| Metric | Q3 2022 / September 30, 2022 | Prior comparable period / year-end |
|---|---|---|
| Total revenue, three months | $39.7 million | $17.3 million in Q3 2021 |
| Total revenue, nine months | $101.6 million | $42.3 million in nine months 2021 |
| Net income (loss), three months | $13.2 million; $6.79 basic EPS | $(1.1) million; $(0.58) basic EPS in Q3 2021 |
| Net income (loss), nine months | $35.3 million; $17.95 basic EPS | $(5.0) million; $(2.52) basic EPS in nine months 2021 |
| Cash from operations, nine months | $47.3 million | $18.8 million in nine months 2021 |
| Capital expenditures, nine months | $8.0 million | $11.3 million in nine months 2021 |
| Cash and cash equivalents | $24.1 million | $10.3 million at December 31, 2021 |
| Bank debt | None outstanding | $36.0 million at December 31, 2021 |
| Current assets / current liabilities | $42.1 million / $22.2 million; approximately 1.9 current ratio | $25.3 million / $21.7 million at December 31, 2021 |
For the first nine months, oil and gas sales were $102.8 million, up 122.9% year over year, reflecting higher production and realized prices. Oil production rose 56.8% and average oil price increased 58.6%; gas production rose 2.6% and average gas price increased 81.0%. NGL sales increased 60.4%. Field service income increased 74.2% to $10.8 million. Calculated net margins were about 34.7% for the nine months and 33.2% for Q3; these figures include derivative effects and, for nine months, the asset-sale gain.
Operating cash flow less reported capital expenditures was approximately $39.4 million for the nine months. Investing cash flow was positive $7.4 million, including $15.3 million of property-sale proceeds. Total liabilities were $83.5 million, including $47.5 million of deferred income taxes and $12.5 million of asset retirement obligations.
Material changes and notable items
- Profitability improved substantially from losses in 2021, driven principally by higher oil and gas prices and increased oil production. Nine-month operating income included a $15.3 million gain on asset sales; the comparable 2021 gain was $0.1 million.
- Derivative results remained significant and volatile: nine-month realized derivative losses were $14.0 million and unrealized gains were $1.9 million. In Q3, the company recorded a $4.3 million realized loss and a $6.1 million unrealized gain.
- Lease operating expense rose 73.9% to $26.6 million for nine months, partly due to production taxes, workovers, and higher-lifting-cost properties returning to production. General and administrative expense rose 85.5% to $11.5 million, primarily from employee compensation and benefits.
- The company repaid $36.0 million of bank debt during the nine months and repurchased 61,377 shares for approximately $5.0 million. Treasury shares increased accordingly.
- Oil and gas property sales during 2022 generated about $15.3 million in proceeds through September. A subsequent November acreage transaction included a sale of part of the company’s interest for $16.1 million.
Outlook, liquidity, and risks
- No formal earnings or production guidance is provided. Management says capital spending will depend on operating cash flow, commodity conditions, opportunities, and credit availability. Planned drilling includes 26 West Texas wells, with approximately $87 million of company investment indicated in the discussion; the filing also describes a separate potential 18-well development requiring approximately $90 million of reinvested cash flow.
- The July 2022 credit agreement has a $75 million initial borrowing base and matures June 1, 2026; the facility’s stated maximum commitment is $300 million. It is secured by substantially all oil and gas properties and contains financial and operational covenants. Management reported compliance and expected continued compliance over the next 12 months. Borrowing-base reductions could constrain liquidity or require repayment.
- Existing commodity derivatives expire in March 2023. Management said it did not intend to enter future derivative contracts unless required by the credit facility. Derivatives can limit upside from higher prices, while mark-to-market accounting can cause earnings volatility; counterparty credit risk also applies.
- Management identifies commodity-price, production, operating, market-access, and financing risks. It may adjust capital plans, sell non-strategic assets, or pursue joint ventures to preserve liquidity. Planned development and spending are subject to change.
- The November acreage exchange and joint-development agreement are subsequent events after the reporting date. Management expects the resulting acreage position and partnership to support future horizontal development.
- The company reported no legal proceedings, stated that environmental and other ordinary-course contingencies were not expected to have a material adverse effect, and concluded disclosure controls were effective.
Key facts for investors to verify
- Whether planned drilling investment and project timing remain consistent with available cash flow, the $75 million borrowing base, and covenant requirements.
- The economics, closing terms, and accounting treatment of the November acreage transactions, including the reported $16.1 million proceeds.
- Current production, realized prices, and derivative positions as contracts approach their March 2023 expiration; reported derivative fair values rely on Level 3 inputs.
- The drivers and sustainability of higher operating costs and general and administrative expense.
- Share-count reconciliation: the balance sheet reports 1,930,700 shares outstanding at September 30, while the cover reports 1,920,500 shares as of November 18, 2022.